Working Paper: NBER ID: w18890
Authors: Mary Amiti; David E. Weinstein
Abstract: We show that supply-side financial shocks have a large impact on firms' investment. We develop a new methodology to separate firm-borrowing shocks from bank-supply shocks using a vast sample of matched bank-firm lending data. We decompose aggregate loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). We show that idiosyncratic granular bank-supply shocks explain 30-40 percent of aggregate loan and investment fluctuations.
Keywords: bank shocks; investment; firm-level data; Japan; financial supply shocks
JEL Codes: E44; G21; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| idiosyncratic granular bank-supply shocks (E19) | firms' investment rates (G31) |
| firms' investment rates (G31) | fluctuations in GDP (E32) |
| bank-supply shocks (E51) | investment behavior (G11) |
| bank-supply shocks (E51) | loan supply channels (G21) |
| firms with substantial borrowing (G32) | sensitivity to lenders' supply shocks (E44) |