On the Direct and Indirect Real Effects of Credit Supply Shocks
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.
Laura Alfaro, Manuel García-Santana, and Enrique Moral-Benito