Working Paper: NBER ID: w23546
Authors: Nittai K. Bergman; Rajkamal Iyer; Richard T. Thakor
Abstract: What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.
Keywords: cash injections; farm debt crisis; financial frictions; economic outcomes; weather shocks
JEL Codes: D22; D24; D31; E23; E24; E51; G01; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cash flow shocks resulting from favorable weather conditions (Q54) | increases in agricultural land prices (Q15) |
| cash flow shocks (F32) | reduced agricultural loan delinquency rates (Q14) |
| cash flow injections (O16) | decrease the probability of bank failures (G28) |
| cash flow shocks (F32) | increased employment rates and wages in the agricultural sector (J43) |
| cash flow shocks (F32) | lower employment rates and wages in the agricultural sector (J43) |
| cash flow shocks (F32) | multiplier effect on county income levels (R15) |
| weather shocks (Q54) | cash flow shocks (F32) |
| weather shocks (Q54) | agricultural productivity (Q11) |
| agricultural productivity (Q11) | local income levels (H79) |