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Credit Conditions and Recoveries from Recessions Associated with Financial Crises

  • Prakash Kannan

Recoveries from recessions associated with a financial crisis tend to be sluggish. In this paper, we present evidence that stressed credit conditions are an important factor constraining the pace of recovery. In particular, using industry-level data, we find that industries relying more on external finance grow more slowly than other industries during recoveries from recessions associated with financial crises. Additional tests, based on establishment size, on alternative definitions of financial crises, and on corporate-government interest rate spreads, support the findings. Moreover, for subsets of industries where financial frictions are more severe, we find much stronger differential growth effects.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/83.

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Length: 34
Date of creation: 01 Mar 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/83
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