IDEAS home Printed from https://ideas.repec.org/a/oup/qjecon/v132y2017i1p317-365..html
   My bibliography  Save this article

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.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/qje/qjw031
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rodney Ramcharan & Christopher Crowe, 2013. "The Impact of House Prices on Consumer Credit: Evidence from an Internet Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1085-1115, September.
    2. Atif Mian & Amir Sufi, 2010. "Household Leverage and the Recession of 2007–09," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(1), pages 74-117, August.
    3. Austan D. Goolsbee & Alan B. Krueger, 2015. "A Retrospective Look at Rescuing and Restructuring General Motors and Chrysler," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 3-24, Spring.
    4. Ludvigson, Sydney, 1998. "The Channel of Monetary Transmission to Demand: Evidence from the Market for Automobile Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 365-383, August.
    5. repec:hrv:faseco:33077921 is not listed on IDEAS
    6. William Adams & Liran Einav & Jonathan Levin, 2009. "Liquidity Constraints and Imperfect Information in Subprime Lending," American Economic Review, American Economic Association, vol. 99(1), pages 49-84, March.
    7. Marcin Kacperczyk & Philipp Schnabl, 2010. "When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007-2009," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 29-50, Winter.
    8. Lamar Pierce, 2012. "Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing," Management Science, INFORMS, vol. 58(6), pages 1106-1121, June.
    9. Shleifer, Andrei & Vishny, Robert W., 2010. "Unstable banking," Journal of Financial Economics, Elsevier, vol. 97(3), pages 306-318, September.
    10. Jesse Bricker & Jacob Krimmel & Rodney Ramcharan, 2014. "Signaling Status: The Impact of Relative Income on Household Consumption and Financial Decisions," Finance and Economics Discussion Series 2014-76, Board of Governors of the Federal Reserve System (U.S.).
    11. Campbell, Sean & Covitz, Daniel & Nelson, William & Pence, Karen, 2011. "Securitization markets and central banking: An evaluation of the term asset-backed securities loan facility," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 518-531.
    12. Douglas W. Diamond & Raghuram G. Rajan, 2005. "Liquidity Shortages and Banking Crises," Journal of Finance, American Finance Association, vol. 60(2), pages 615-647, April.
    13. Christopher Mayer & Karen Pence & Shane M. Sherlund, 2009. "The Rise in Mortgage Defaults," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 27-50, Winter.
    14. Ali Hortaçsu & Gregor Matvos & Chad Syverson & Sriram Venkataraman, 2013. "Indirect Costs of Financial Distress in Durable Goods Industries: The Case of Auto Manufacturers," Review of Financial Studies, Society for Financial Studies, vol. 26(5), pages 1248-1290.
    15. John M. Barron & Byung-Uk Chong & Michael E. Staten, 2008. "Emergence of Captive Finance Companies and Risk Segmentation in Loan Markets: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 173-192, February.
    16. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    17. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
    18. David Haugh & Annabelle Mourougane & Olivier Chatal, 2010. "The Automobile Industry in and Beyond the Crisis," OECD Economics Department Working Papers 745, OECD Publishing.
    19. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    20. Gabriel Chodorow-Reich, 2014. "The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008-9 Financial Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 1-59.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel I. Garcia, 2018. "Employment in the Great Recession : How Important Were Household Credit Supply Shocks?," Finance and Economics Discussion Series 2018-074, Board of Governors of the Federal Reserve System (U.S.).
    2. David Aikman & Jonathan Bridges & Anil Kashyap & Caspar Siegert, 2019. "Would Macroprudential Regulation Have Prevented the Last Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 33(1), pages 107-130, Winter.
    3. Giacomo Rodano & Nicolas Serrano-Velarde & Emanuele Tarantino, 2018. "Lending Standards over the Credit Cycle," Review of Financial Studies, Society for Financial Studies, vol. 31(8), pages 2943-2982.
    4. repec:fip:fedgfe:2014-115 is not listed on IDEAS
    5. Rustom M. Irani & Ralf R. Meisenzahl, 2015. "Loan Sales and Bank Liquidity Risk Management: Evidence from a U.S. Credit Register," Finance and Economics Discussion Series 2015-1, Board of Governors of the Federal Reserve System (U.S.).
    6. Ippolito, Filippo & Peydró, José-Luis & Polo, Andrea & Sette, Enrico, 2016. "Double bank runs and liquidity risk management," Journal of Financial Economics, Elsevier, vol. 122(1), pages 135-154.
    7. Dong Beom Choi, 2014. "Heterogeneity and Stability: Bolster the Strong, Not the Weak," Review of Financial Studies, Society for Financial Studies, vol. 27(6), pages 1830-1867.
    8. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    9. Daniel García, 2020. "Employment in the Great Recession: How Important Were Household Credit Supply Shocks?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(1), pages 165-203, February.
    10. Peydró, José-Luis & Polo, Andrea & Sette, Enrico, 2021. "Monetary policy at work: Security and credit application registers evidence," Journal of Financial Economics, Elsevier, vol. 140(3), pages 789-814.
    11. Abbassi, Puriya & Iyer, Rajkamal & Peydró, José-Luis & Tous, Francesc R., 2016. "Securities trading by banks and credit supply: Micro-evidence from the crisis," Journal of Financial Economics, Elsevier, vol. 121(3), pages 569-594.
    12. Dwenger, Nadja & Dr. Fossen, Frank & Dr. Simmler, Martin, 2015. "From financial to real economic crisis. Evidence from individual firm-bank relationships in Germany," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113000, Verein für Socialpolitik / German Economic Association.
    13. Raddatz, Claudio & Schmukler, Sergio L., 2012. "On the international transmission of shocks: Micro-evidence from mutual fund portfolios," Journal of International Economics, Elsevier, vol. 88(2), pages 357-374.
    14. Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, 2013. "A Model of Shadow Banking," Journal of Finance, American Finance Association, vol. 68(4), pages 1331-1363, August.
    15. Eisenbach, Thomas M., 2017. "Rollover risk as market discipline: A two-sided inefficiency," Journal of Financial Economics, Elsevier, vol. 126(2), pages 252-269.
    16. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, April.
    17. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "No guarantees, no trade: How banks affect export patterns," Journal of International Economics, Elsevier, vol. 108(C), pages 338-350.
    18. Lim , Jamus Jerome & Minne, Geoffrey, 2014. "Learning from financial crises," Policy Research Working Paper Series 6838, The World Bank.
    19. Bucă, Andra & Vermeulen, Philip, 2017. "Corporate investment and bank-dependent borrowers during the recent financial crisis," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 164-180.
    20. Hryckiewicz, Aneta, 2014. "Originators, traders, neutrals, and traditioners – various banking business models across the globe. Does the business model matter for financial stability?," MPRA Paper 55118, University Library of Munich, Germany.
    21. Jens Dick-Nielsen & Jacob Gyntelberg, 2019. "Highly Liquid Mortgage Bonds Using the Match Funding Principle," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-37, December.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:qjecon:v:132:y:2017:i:1:p:317-365.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press or Christopher F. Baum (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.