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The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles

Author

Listed:
  • Efraim Benmelech
  • Ralf R. Meisenzahl
  • Rodney Ramcharan

Abstract

Illiquidity in short-term credit markets during the financial crisis might have severely curtailed the supply of nonbank consumer credit. Using a new data set linking every car sold in the United States to the credit supplier involved in each transaction, we find that the collapse of the asset-backed commercial paper market reduced the financing capacity of such nonbank lenders as captive leasing companies in the automobile industry. As a result, car sales in counties that traditionally depended on nonbank lenders declined sharply. Although other lenders increased their supply of credit, the net aggregate effect of illiquidity on car sales is large and negative. We conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market. These results also imply that interventions aimed at arresting illiquidity in short-term credit markets might have helped contain the real effects of the crisis.

Suggested Citation

  • Efraim Benmelech & Ralf R. Meisenzahl & Rodney Ramcharan, 2017. "The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 317-365.
  • Handle: RePEc:oup:qjecon:v:132:y:2017:i:1:p:317-365.
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    File URL: http://hdl.handle.net/10.1093/qje/qjw031
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    Cited by:

    1. repec:bis:bisbps:95 is not listed on IDEAS
    2. Scott R. Baker & Lorenz Kueng & Leslie McGranahan & Brian T. Melzer, 2019. "Do Household Finances Constrain Unconventional Fiscal Policy?," Tax Policy and the Economy, University of Chicago Press, vol. 33(1), pages 1-32.
    3. repec:ebl:ecbull:eb-18-00112 is not listed on IDEAS
    4. Foley-Fisher, Nathan & Ramcharan, Rodney & Yu, Edison, 2016. "The impact of unconventional monetary policy on firm financing constraints: Evidence from the maturity extension program," Journal of Financial Economics, Elsevier, vol. 122(2), pages 409-429.
    5. repec:eee:corfin:v:46:y:2017:i:c:p:170-185 is not listed on IDEAS
    6. repec:eee:enepol:v:129:y:2019:i:c:p:1404-1415 is not listed on IDEAS
    7. Stephan Luck & Thomas Zimmermann, 2018. "Employment Effects of Unconventional Monetary Policy : Evidence from QE," Finance and Economics Discussion Series 2018-071, Board of Governors of the Federal Reserve System (US).
    8. repec:bin:bpeajo:v:49:y:2019:i:2018-01:p:429-513 is not listed on IDEAS
    9. Lorena Keller, 2018. "Prudential Capital Controls and Risk Misallocation: Bank Lending Channel," 2018 Meeting Papers 129, Society for Economic Dynamics.
    10. Daniel Green & Brian T. Melzer & Jonathan A. Parker & Arcenis Rojas, 2016. "Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand," NBER Working Papers 22878, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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