Working Paper: NBER ID: w22148
Authors: Efraim Benmelech; Ralf R. Meisenzahl; Rodney Ramcharan
Abstract: Illiquidity in short-term credit markets during the financial crisis might have severely curtailed the supply of non-bank consumer credit. Using a new data set linking every car sold in the United States to the credit supplier involved in each transaction, we find that the collapse of the asset-backed commercial paper market reduced the financing capacity of such non-bank lenders as captive leasing companies in the automobile industry. As a result, car sales in counties that traditionally depended on non-bank lenders declined sharply. Although other lenders increased their supply of credit, the net aggregate effect of illiquidity on car sales is large and negative. We conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market. These results also imply that interventions aimed at arresting illiquidity in short-term credit markets might have helped to contain the real effects of the crisis.
Keywords: liquidity; financial crisis; automobile sales; nonbank lending; credit supply shock
JEL Codes: G01; G23; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| collapse of ABCP market (G33) | reduced financing capacity of nonbank lenders (G21) |
| reduced financing capacity of nonbank lenders (G21) | decline in new car transactions (L14) |
| liquidity shock to nonbank financing capacity (F65) | drop in car sales (L81) |
| nonbank dependence (G21) | decline in new car transactions (L14) |