Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times

48 Pages Posted: 10 Dec 2012 Last revised: 1 Feb 2018

See all articles by Michael Greenstone

Michael Greenstone

University of Chicago - Department of Economics; Becker Friedman Institute for Economics; National Bureau of Economic Research (NBER)

Alexandre Mas

Department of Economics and Woodrow Wilson School, Princeton University; National Bureau of Economic Research (NBER)

Hoai-Luu Nguyen

University of California, Berkeley - Haas School of Business

Date Written: November 1, 2017

Abstract

Using comprehensive data on bank lending and establishment-level outcomes from 1997-2011, this paper fails to find evidence in favor of the hypothesis that the small business lending channel is an important determinant of small business or overall economic activity. The shift-share style research design predicts county-level lending shocks using variation in pre-existing bank market shares and estimated bank supply-shifts. The results indicate that counties with negative predicted supply shocks experienced declines in small business loan originations throughout the entire period, indicating that it is costly for these businesses to find new lenders. However, we find that the predicted lending shocks only led to economically small declines in both small firm and overall employment during the Great Recession, and did not affect employment during the 1997-2007 period.

Keywords: Great Recession, bank lending, employment, small businesses

JEL Classification: D22, D53, G01, G1, G21, J01, J23

Suggested Citation

Greenstone, Michael and Mas, Alexandre and Nguyen, Hoai-Luu, Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times (November 1, 2017). Available at SSRN: https://ssrn.com/abstract=2187521 or http://dx.doi.org/10.2139/ssrn.2187521

Michael Greenstone (Contact Author)

University of Chicago - Department of Economics

1126 East 59th Street
Chicago, IL 60637
United States

Becker Friedman Institute for Economics ( email )

Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alexandre Mas

Department of Economics and Woodrow Wilson School, Princeton University ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoai-Luu Nguyen

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/hqn

Register to save articles to
your library

Register

Paper statistics

Downloads
1,186
rank
15,606
Abstract Views
4,949
PlumX Metrics