The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles

75 Pages Posted: 11 Apr 2016

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Ralf R. Meisenzahl

Federal Reserve Board

Rodney Ramcharan

University of Southern California, Marshall School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 2016

Abstract

Illiquidity in short-term credit markets during the financial crisis might have severely curtailed the supply of non-bank consumer credit. Using a new data set linking every car sold in the United States to the credit supplier involved in each transaction, we find that the collapse of the asset-backed commercial paper market reduced the financing capacity of such non-bank lenders as captive leasing companies in the automobile industry. As a result, car sales in counties that traditionally depended on non-bank lenders declined sharply. Although other lenders increased their supply of credit, the net aggregate effect of illiquidity on car sales is large and negative. We conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market. These results also imply that interventions aimed at arresting illiquidity in short-term credit markets might have helped to contain the real effects of the crisis.

Suggested Citation

Benmelech, Efraim and Meisenzahl, Ralf R. and Ramcharan, Rodney, The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles (April 2016). NBER Working Paper No. w22148. Available at SSRN: https://ssrn.com/abstract=2762059

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ralf R. Meisenzahl

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Rodney Ramcharan

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

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