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Credit availability and investment in Italy: lessons from the "Great Recession"

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  • Eugenio Gaiotti

    ()
    (Bank of Italy)

Abstract

The paper argues that the traditional difficulty encountered in finding evidence on the effects of credit availability on economic activity depends on the fact that these effects are powerful but rare and vary with the cycle. The global financial crisis offers an opportunity to test this assumption. The paper exploits a unique dataset, including direct information on credit rationing for 1,200 Italian firms over the last twenty years. We find that the elasticity of a firm’s investment to the availability of bank credit has been significant in periods of economic contraction, but not in other periods; that the ability to tap alternative sources of finance is crucial to this result; that during the global crisis the impact of credit constraints on Italian investment in manufacturing was significant.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 793.

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Date of creation: Feb 2011
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Handle: RePEc:bdi:wptemi:td_793_11

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Web page: http://www.bancaditalia.it
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Keywords: credit availability; credit channel; Great Recession;

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  16. Ugo Albertazzi & Domenico J. Marchetti, 2010. "credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman," Temi di discussione (Economic working papers) 756, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. Giorgio Albareto & Paolo Finaldi Russo, 2012. "Financial fragility and growth prospects: credit rationing during the crisis," Questioni di Economia e Finanza (Occasional Papers) 127, Bank of Italy, Economic Research and International Relations Area.
  2. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
  3. Douglas Sutherland & Peter Hoeller, 2012. "Debt and Macroeconomic Stability: An Overview of the Literature and Some Empirics," OECD Economics Department Working Papers 1006, OECD Publishing.
  4. Emilia Bonaccorsi di Patti & Enrico Sette, 2012. "Bank balance sheets and the transmission of financial shocks to borrowers: evidence from the 2007-2008 crisis," Temi di discussione (Economic working papers) 848, Bank of Italy, Economic Research and International Relations Area.
  5. Roberto Felici & Elisabetta Manzoli & Raffaella Pico, 2012. "Crisis and Italian households: a microeconomic analysis of mortgage contracts," Questioni di Economia e Finanza (Occasional Papers) 125, Bank of Italy, Economic Research and International Relations Area.

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