Working Paper: NBER ID: w29774
Authors: Federico Huneeus; Joseph P. Kaboski; Mauricio Larrain; Sergio L. Schmukler; Mario Vera
Abstract: We study the distribution of credit during crisis times and its impact on leverage and risk at the firm and macroeconomic levels. We analyze a large-scale COVID-19 public credit guarantee program in Chile, using novel transaction-level credit data matched with tax data. We find that demand drives the increase in leverage, especially for riskier firms, but several factors keep aggregate risk small. Aggregate risk increases substantially when credit limits are relaxed, but reallocating the existing program credit toward riskier firms or raising the expected default increases risk much less. A quantitative model of firms and endogenous default confirms our empirics.
Keywords: Crisis Credit; Firm Indebtedness; Aggregate Risk; Public Credit Guarantee Program; COVID-19
JEL Codes: E44; E5; G01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government credit injections (H81) | firm indebtedness (G32) |
| demand from riskier firms (G32) | firm indebtedness (G32) |
| credit caps and interest rate ceilings (G21) | aggregate risk (E10) |
| credit distribution (G51) | aggregate risk levels (E10) |
| lending patterns shift (G21) | firm indebtedness (G32) |
| large, safe borrowers (G21) | overall risk (D81) |