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Credit Conditions and Recoveries From Recessions Associated with Financial Crises

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  • Prakash Kannan

Abstract

Recoveries from recessions associated with a financial crisis tend to be sluggish. In this paper, we present evidence that stressed credit conditions are an important factor constraining the pace of recovery. In particular, using industry-level data, we find that industries relying more on external finance grow more slowly than other industries during recoveries from recessions associated with financial crises. Additional tests, based on establishment size, on alternative definitions of financial crises, and on corporate-government interest rate spreads, support the findings. Moreover, for subsets of industries where financial frictions are more severe, we find much stronger differential growth effects.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/83.

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Length: 34
Date of creation: 01 Mar 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/83

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Keywords: Bank credit; Banking crisis; Developed countries; Economic models; Economic recession; Economic recovery; Industrial sector; Production growth; recessions; external finance; financial crises; financial crisis; recession; banking crises; crisis episodes; external financing; political economy; crisis problem; tradable goods; borderline financial crises; output growth; contagion; loan crisis; systemic banking crises; external funding; systemic financial crises; perfect substitutes;

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