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Credit Supply Shocks, Network Effects, and the Real Economy

Author

Listed:
  • Laura Alfaro

    () (Harvard Business School, General Management Unit)

  • Manuel García-Santana

    () (Universitat Pompeu Fabra)

  • Enrique Moral-Benito

    () (Banco de Espana)

Abstract

We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset on the universe of corporate loans for 2003-2013 to identify bank-specific shocks for each year using methods from the matched employer-employee literature. Combining firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period but no significant impact on employment during the expansion period. Downstream propagation effects are comparable or even larger in magnitude than direct effects. The results corroborate the importance of network effects in quantifying the real effects of credit shocks and show that real effects vary during booms and contractions.

Suggested Citation

  • Laura Alfaro & Manuel García-Santana & Enrique Moral-Benito, 2017. "Credit Supply Shocks, Network Effects, and the Real Economy," Harvard Business School Working Papers 18-052, Harvard Business School, revised Mar 2018.
  • Handle: RePEc:hbs:wpaper:18-052
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    More about this item

    Keywords

    bank-lending channel; employment; investment; output; matched employer-employee; input-output linkages.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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