Working Paper: NBER ID: w20704
Authors: Michael Greenstone; Alexandre Mas; Hoailuu Nguyen
Abstract: We estimate the effect of the reduction in credit supply that followed the 2008 financial crisis on the real economy. We predict county lending shocks using variation in pre-crisis bank market shares and estimated bank supply-shifts. Counties with negative predicted shocks experienced declines in small business loan originations, indicating that it is costly for these businesses to find new lenders. Using confidential microdata from the Longitudinal Business Database, we find that the 2007-2009 lending shocks accounted for statistically significant, but economically small, declines in both small firm and overall employment. Predicted lending shocks affected lending but not employment from 1997-2007.
Keywords: credit market shocks; real economy; small business lending; Great Recession
JEL Codes: D22; D53; G01; G1; G21; J01; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Predicted lending shocks (F65) | Small business loan originations (M13) |
| Predicted lending shocks (F65) | Employment growth rates for small establishments (L26) |
| Predicted lending shocks (F65) | Changes in economic activity (E39) |
| Credit channel (E51) | Small business employment decline (J23) |