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

  • 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
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Handle: RePEc:bdi:wptemi:td_793_11
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Web page: http://www.bancaditalia.it

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  1. Gaiotti, Eugenio & Generale, Andrea, 2001. "Does monetary policy have asymmetric effects? A look at the investment decisions of Italian firms," Working Paper Series 0110, European Central Bank.
  2. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
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  4. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 0240, European Central Bank.
  5. Lee, Sangwoo & Park, Kwangwoo & Shin, Hyun-Han, 2009. "Disappearing internal capital markets: Evidence from diversified business groups in Korea," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 326-334, February.
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  7. Matteo Ciccarelli & Angela Maddaloni & Jose Luis Peydro, . "Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  8. Giorgio Gobbi & Enrico Sette, 2012. "Relationship lending in a financial turmoil," Mo.Fi.R. Working Papers 59, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  9. Peter van Els & Alberto Locarno & Beno�t 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.
  10. Ugo Albertazzi & Domenico J. Marchetti, 2010. "Credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman," Temi di discussione (Economic working papers) 756, Bank of Italy, Economic Research and International Relations Area.
  11. Michael D. Bordo & Joseph G. Haubrich, 2009. "Credit crises, money, and contractions: A historical view," Working Paper 0908, Federal Reserve Bank of Cleveland.
  12. Guiso, Luigi, 1997. "High-Tech Firms and Credit Rationing," CEPR Discussion Papers 1696, C.E.P.R. Discussion Papers.
  13. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 707-712, May.
  14. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  15. Guiso, Luigi & Parigi, Giuseppe, 1996. "Investment and Demand Uncertainty," CEPR Discussion Papers 1497, C.E.P.R. Discussion Papers.
  16. 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.
  17. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  18. John V. Duca & Stuart S. Rosenthal, 1993. "Borrowing constraints, household debt, and racial discrimination in loan markets," Research Paper 9312, Federal Reserve Bank of Dallas.
  19. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  20. Paolo Angelini & Andrea Generale, 2008. "On the Evolution of Firm Size Distributions," American Economic Review, American Economic Association, vol. 98(1), pages 426-38, March.
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