On the Direct and Indirect Real Effects of Credit Supply Shocks

55 Pages Posted: 23 Jan 2019 Last revised: 25 Jul 2021

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Manuel García-Santana

Barcelona Graduate School of Economics (Barcelona GSE); Centre for Economic Policy Research (CEPR)

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Multiple version iconThere are 3 versions of this paper

Date Written: January 2019

Abstract

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. We construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity using firm-specific measures of upstream and downstream exposure. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period, especially during the 2008-2009 global financial crisis. In terms of mechanisms, trade credit extended by suppliers and price adjustments play a role in accounting for downstream propagation of financial shocks.

Suggested Citation

Alfaro, Laura and García-Santana, Manuel and Moral-Benito, Enrique, On the Direct and Indirect Real Effects of Credit Supply Shocks (January 2019). NBER Working Paper No. w25458, Available at SSRN: https://ssrn.com/abstract=3319683

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Manuel García-Santana

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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