How Much Do Idiosyncratic Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Data

58 Pages Posted: 15 Mar 2013 Last revised: 19 Mar 2013

See all articles by Mary Amiti

Mary Amiti

Federal Reserve Bank of New York

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: March 2013

Abstract

We show that supply-side financial shocks have a large impact on firms' investment. We develop a new methodology to separate firm-borrowing shocks from bank-supply shocks using a vast sample of matched bank-firm lending data. We decompose aggregate loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). We show that idiosyncratic granular bank-supply shocks explain 30-40 percent of aggregate loan and investment fluctuations.

Suggested Citation

Amiti, Mary and Weinstein, David E., How Much Do Idiosyncratic Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Data (March 2013). NBER Working Paper No. w18890. Available at SSRN: https://ssrn.com/abstract=2233782

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

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David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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