Investment Slumps During Financial Crises: The Real Effects of Credit Supply

69 Pages Posted: 30 Jun 2018 Last revised: 3 Jan 2020

Date Written: June 15, 2018


To measure the real effects of credit-supply disruptions during financial crises, we develop a quantitative model of firm investment and debt that features firm heterogeneity and financial frictions. We apply this framework to a novel, census-type panel dataset for manufacturing firms and find that the contraction in credit supply during the Greek Depression was responsible for 9-36% of the drop in corporate investment after controlling for changes in investment opportunities and uncertainty. Our empirical framework does not require cross-sectional variation in credit-supply conditions to separate the demand for credit from its supply. This feature is particularly useful for studying financial crises when credit-supply shocks are likely to have a substantial common component. Our model also helps to explore the effectiveness of counterfactual policies of fiscal stimulus or debt forgiveness for boosting corporate investment.

Keywords: credit supply, common shocks, firm investment, financial crises, Greek Depression

JEL Classification: G01, G31, D22, E44

Suggested Citation

Fakos, Alexandros and Sakellaris, Plutarchos and Tavares, Tiago, Investment Slumps During Financial Crises: The Real Effects of Credit Supply (June 15, 2018). Available at SSRN: or

Alexandros Fakos (Contact Author)

ITAM ( email )

Av. Camino a Santa Teresa 930
Colonia Heroes de Padierna
Mexico City, CDMX 10700


Plutarchos Sakellaris

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
+302108203304 (Phone)
+3012108203383 (Fax)

Tiago Tavares

ITAM ( email )

Camino a Santa Teresa No. 930
Col. Héroes de Padierna
Ciudad de México

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