On the Direct and Indirect Real Effects of Credit Supply Shocks

52 Pages Posted: 21 Dec 2017 Last revised: 22 Mar 2018

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Manuel García-Santana

Universitat Pompeu Fabra

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Date Written: March 12, 2018


We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset on the universe of corporate loans for 2003-2013 to identify bank-specific shocks for each year using methods from the matched employer-employee literature. Combining firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period but no significant impact on employment during the expansion period. Downstream propagation effects are comparable or even larger in magnitude than direct effects. The results corroborate the importance of network effects in quantifying the real effects of credit shocks and show that real effects vary during booms and contractions.

Keywords: bank-lending channel, employment, investment, output, matched employer-employee, input-output linkages.

JEL Classification: E44, G21, L25

Suggested Citation

Alfaro, Laura and García-Santana, Manuel and Moral-Benito, Enrique, On the Direct and Indirect Real Effects of Credit Supply Shocks (March 12, 2018). Harvard Business School BGIE Unit Working Paper No. 18-052, Available at SSRN: https://ssrn.com/abstract=3091193 or http://dx.doi.org/10.2139/ssrn.3091193

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Manuel García-Santana

Universitat Pompeu Fabra ( email )

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903

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