Credit Conditions and Recoveries from Recessions Associated with Financial Crises

35 Pages Posted: 12 Apr 2010

See all articles by Prakash Kannan

Prakash Kannan

International Monetary Fund (IMF)

Date Written: March 2010

Abstract

Recoveries from recessions associated with a financial crisis tend to be sluggish. In this paper, we present evidence that stressed credit conditions are an important factor constraining the pace of recovery. In particular, using industry-level data, we find that industries relying more on external finance grow more slowly than other industries during recoveries from recessions associated with financial crises. Additional tests, based on establishment size, on alternative definitions of financial crises, and on corporate-government interest rate spreads, support the findings. Moreover, for subsets of industries where financial frictions are more severe, we find much stronger differential growth effects.

Keywords: Bank credit, Banking crisis, Business cycles, Credit, Developed countries, Economic models, Economic recession, Economic recovery, External financing, Financial crisis, Industrial sector, Production growth

Suggested Citation

Kannan, Prakash, Credit Conditions and Recoveries from Recessions Associated with Financial Crises (March 2010). IMF Working Papers, Vol. , pp. 1-34, 2010. Available at SSRN: https://ssrn.com/abstract=1586672

Prakash Kannan (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
(202)623-8806 (Phone)

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