Download this Paper Open PDF in Browser

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

52 Pages Posted: 10 Dec 2012 Last revised: 26 Sep 2015

Michael Greenstone

University of Chicago - Department of 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 Q. Nguyen

University of California, Berkeley - Haas School of Business

Date Written: September 2015

Abstract

This paper uses comprehensive data on bank lending and establishment-level outcomes from 1997-2011 to test whether changes in small business bank lending affect the real economy. The shift-share style research design predicts county-level lending shocks using variation in pre-existing bank market shares and estimated bank supply-shifts. 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. Using confidential microdata from the Longitudinal Business Database, we find the predicted lending shocks led to statistically significant, but economically small, declines in both small firm and overall employment during the Great Recession, but did not affect employment during the 1997-2007 period. Overall, this paper’s evidence fails to support the hypothesis that the small business lending channel is an important determinant of economic activity.

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 Q., Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times (September 2015). 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 ( email )

1126 East 59th Street
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 Q. 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

Paper statistics

Downloads
1,047
Rank
16,402
Abstract Views
4,189