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Credit conditions and recoveries from financial crises

  • Kannan, Prakash

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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File URL: http://www.sciencedirect.com/science/article/pii/S0261560611001835
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 5 ()
Pages: 930-947

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:5:p:930-947
DOI: 10.1016/j.jimonfin.2011.11.017
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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