Working Paper: CEPR ID: DP18631
Authors: Ricardo Correa; Julian Di Giovanni; Linda S. Goldberg; Camelia Minoiu
Abstract: This paper uses U.S. credit register data and the 2018–2019 Trade War to study the effects of uncertainty on domestic credit supply. Exploiting differences in banks’ exante exposure to trade uncertainty, we find that increased uncertainty is associated with a broad lending contraction across their customer firms. This result is consistent with banks responding to uncertainty with wait-and-see behaviors, where more exposed banks curtail risky exposures, reduce loan maturities, and adjust loan supply along both intensive and extensive margins. The lending contraction is larger for more capital-constrained banks and has significant real effects, especially for bank-dependent firms.
Keywords: trade uncertainty; bank loans; trade finance; global value chains; trade war
JEL Codes: G21; F34; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bank Exposure to Trade Uncertainty (F65) | Trade Uncertainty (F14) |
| Trade Uncertainty (F14) | Bank Lending (G21) |
| Bank Exposure to Trade Uncertainty (F65) | Bank Lending (G21) |
| Bank Lending (G21) | Firm Debt Growth (D25) |
| Bank Lending (G21) | Firm Investment Rates (G31) |
| Bank Exposure to Trade Uncertainty (F65) | Loan Spreads (G51) |
| Wait-and-See Channel (D84) | Bank Lending (G21) |
| Financial Frictions Channel (G19) | Bank Lending (G21) |