Zombie Credit and (Dis-)Inflation: Evidence from Europe

54 Pages Posted: 22 Apr 2020 Last revised: 17 Jun 2020

See all articles by Viral V. Acharya

Viral V. Acharya

New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Matteo Crosignani

Federal Reserve Banks - Federal Reserve Bank of New York

Tim Eisert

Erasmus University Rotterdam (EUR)

Christian Eufinger

IESE Business School

Multiple version iconThere are 3 versions of this paper

Date Written: March 27, 2020

Abstract

We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, ``zombie credit'' creates excess production capacity reducing, in turn, prices and markups. Granular European inflation and firm-level data confirms this mechanism. At the industry-country level, a rise of zombie credit is associated with a decrease in product prices, markups, firm default, entry, and productivity, and an increase in input costs and sales. Without a rise in zombie credit, inflation in Europe would have been 0.4 percentage points higher post-2012. We also document adverse spillover effects from zombie to healthy firms.

Keywords: Zombie Lending, Under-capitalized Banks, Disinflation, Firm Productivity, Eurozone Crisis

Suggested Citation

Acharya, Viral V. and Crosignani, Matteo and Eisert, Tim and Eufinger, Christian, Zombie Credit and (Dis-)Inflation: Evidence from Europe (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3562737 or http://dx.doi.org/10.2139/ssrn.3562737

Viral V. Acharya (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matteo Crosignani

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Tim Eisert

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Christian Eufinger

IESE Business School ( email )

Avinguda de Pearson, 21
Barcelona, 08034
Spain

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