Working Paper: NBER ID: w31860
Authors: Ricardo Correa; Julian Di Giovanni; Linda S. Goldberg; Camelia Minoiu
Abstract: This paper uses U.S. credit register data and the 2018–2019 Trade War to study the effects of uncertainty on domestic credit supply. Exploiting differences in banks’ ex-ante exposure to trade uncertainty, we find that increased uncertainty is associated with a broad lending contraction across their customer firms. This result is consistent with banks responding to uncertainty with wait-and-see behaviors, where more exposed banks curtail risky exposures, reduce loan maturities, and adjust loan supply along both intensive and extensive margins. The lending contraction is larger for more capital-constrained banks and has significant real effects, especially for bank-dependent firms.
Keywords: Trade Uncertainty; Bank Lending; Credit Supply
JEL Codes: F34; F42; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in trade uncertainty (F69) | Contraction in bank lending to all firms (G21) |
| Increase in trade uncertainty (F69) | Increase in loan spreads (G21) |
| Increase in trade uncertainty (F69) | Reduction in loan maturities (G32) |
| Increase in trade uncertainty (F69) | Contraction in lending (G21) |
| Firms borrowing from more exposed banks (F65) | Lower debt growth (H63) |
| Firms borrowing from more exposed banks (F65) | Lower investment rates (G31) |