Working Paper: NBER ID: w25458
Authors: Laura Alfaro; Manuel Garcia-Santana; Enrique Moral-Benito
Abstract: We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset on the universe of corporate loans for 2003-2013 to identify bank-specific shocks for each year using methods from the matched employer-employee literature. We construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity using firm-specific measures of upstream and downstream exposure. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period, especially during the 2008-2009 global financial crisis. In terms of mechanisms, trade credit extended by suppliers and price adjustments play a role in accounting for downstream propagation of financial shocks.
Keywords: credit supply shocks; real effects; bank lending channel
JEL Codes: E44; G21; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credit supply shocks (E51) | employment (J68) |
| credit supply shocks (E51) | output (C67) |
| credit supply shocks (E51) | investment (G31) |
| downstream exposure (Q52) | employment (J68) |
| downstream exposure (Q52) | output (C67) |
| downstream exposure (Q52) | investment (G31) |