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Credit Schocks and Allocative Efficiency during a Financial Crisis

Author

Listed:
  • Andrea Linarello

    (Bank of Italy)

  • Andrea Petrella

    (Bank of Italy)

  • Enrico Sette

    (Bank of Italy)

Abstract

This paper studies the effect of credit supply shocks on aggregate labor productivity during a financial crisis. Using data on the universe of Italian manufacturing firms, we decompose aggregate productivity growth in changes in average productivity of incumbents, labor share reallocation among incumbents, entry, and exit. We estimate the impact of industry-specific exogenous credit supply shocks on each component. We find that credit supply tightening entails a drop in average productivity, counterbalanced by the reallocation of labor towards more productive firms, and no significant effect on the contribution of entry and exit to productivity growth. The offsetting response of reallocation is stronger in ex ante more financially constrained industries.

Suggested Citation

  • Andrea Linarello & Andrea Petrella & Enrico Sette, 2022. "Credit Schocks and Allocative Efficiency during a Financial Crisis," International Journal of Central Banking, International Journal of Central Banking, vol. 18(3), pages 125-171, September.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:3:a:4
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • G01 - Financial Economics - - General - - - Financial Crises
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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