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Credit availability and investment in Italy: lessons from the "Great Recession"

Listed author(s):
  • Eugenio Gaiotti

    ()

    (Bank of Italy)

The paper argues that the traditional difficulty encountered in finding evidence on the effects of credit availability on economic activity depends on the fact that these effects are powerful but rare and vary with the cycle. The global financial crisis offers an opportunity to test this assumption. The paper exploits a unique dataset, including direct information on credit rationing for 1,200 Italian firms over the last twenty years. We find that the elasticity of a firm�s investment to the availability of bank credit has been significant in periods of economic contraction, but not in other periods; that the ability to tap alternative sources of finance is crucial to this result; that during the global crisis the impact of credit constraints on Italian investment in manufacturing was significant.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2011/2011-0793/en_tema_793.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 793.

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Date of creation: Feb 2011
Handle: RePEc:bdi:wptemi:td_793_11
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  1. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
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  7. Luigi Guiso & Giuseppe Parigi, 1999. "Investment and Demand Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 185-227.
  8. Eugenio Gaiotti & Andrea Generale, 2002. "Does Monetary Policy Have Asymmetric Effects? A Look at the Investment Decisions of Italian Firms," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 61(1), pages 29-59, June.
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  15. Elena Bontempi & Roberto Golinelli & Giuseppe Parigi, 2007. "Why demand uncertainty curbs investment: Evidence froma a panel of Italian manufacturing firms," Temi di discussione (Economic working papers) 621, Bank of Italy, Economic Research and International Relations Area.
  16. Duca John V. & Rosenthal Stuart S., 1993. "Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 77-103, October.
  17. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  18. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 651-666.
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  21. Peter van Els & Alberto Locarno & Benoît Mojon & Julian Morgan, 2003. "New Macroeconomic Evidence on Monetary Policy Transmission in the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 720-730, 04/05.
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