Bankruptcy Resolution and Credit Cycles
84 Pages Posted: 12 Jun 2024
There are 2 versions of this paper
Bankruptcy Resolution and Credit Cycles
Bankruptcy Resolution and Credit Cycles
Date Written: June 11, 2024
Abstract
We study how the macroeconomic dynamics following credit cycles vary with business bankruptcy institutions. Using data on bankruptcy efficiency and business credit around the world, we document that business credit booms are followed by severe declines in output, investment, and consumption in environments with poorly functioning business bankruptcy. On the contrary, in settings with well functioning business bankruptcy, the aftermath of credit booms is characterized by moderate changes in economic activities. We use a simple model to lay out how and when efficient bankruptcy systems can mitigate the negative consequences of credit booms.
JEL Classification: E60,G01,G3
Suggested Citation: Suggested Citation