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Cyclicality of credit supply: Firm level evidence

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  • Becker, Bo
  • Ivashina, Victoria

Abstract

We quantify fluctuations in bank-loan supply in the time-series by studying firms' substitution between loans and bonds using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on the issuance of new debt, we interpret firms' switching from loans to bonds as a contraction in bank-credit supply. We find strong evidence of this substitution at times that are characterized by tight lending standards, depressed aggregate lending, poor bank performance, and tight monetary policy. We show that this substitution behavior has strong predictive power for bank borrowing and investments by small firms.

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  • Becker, Bo & Ivashina, Victoria, 2014. "Cyclicality of credit supply: Firm level evidence," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 76-93.
    • Handle: RePEc:eee:moneco:v:62:y:2014:i:c:p:76-93
    DOI: 10.1016/j.jmoneco.2013.10.002
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    More about this item

    Keywords

    Banks; Financial markets and the macroeconomy; Business cycles; Credit cycles;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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