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

50 Pages Posted: 3 Apr 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)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2013

Abstract

We show that supply-side financial shocks have a large impact on firms’ investment. We do this by developing a new methodology to separate firm credit shocks from loan supply shocks using a vast sample of matched bank-firm lending data. We decompose 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). As a result, idiosyncratic bank shocks i.e., movements in bank loan supply net of borrower characteristics and general credit conditions can have large impacts on aggregate loan supply and investment. We show that these idiosyncratic bank shocks explain 40 percent of aggregate loan and investment fluctuations.

Keywords: credit constraints, financial markets, granular shock

JEL Classification: E44, G21

Suggested Citation

Amiti, Mary and Weinstein, David E., How Much Do Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Data (March 2013). CEPR Discussion Paper No. DP9400. Available at SSRN: https://ssrn.com/abstract=2244080

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

David E. Weinstein

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

420 W. 118th Street
MC 3308
New York, NY 10027
United States
212-854-6880 (Phone)
212-854-8059 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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