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Do Credit Market Shocks affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and "Normal" Economic Times

  • Michael Greenstone

    (University of Chicago)

  • Alexandre Mas

    (Princeton University)

  • Hoai -Luu Nguyen

    (MIT)

We estimate the effect of the reduction in credit supply that followed the 2008 financial crisis on the real economy. We predict county lending shocks using variation in pre-crisis bank market shares and estimated bank supply-shifts. Counties with negative predicted shocks experienced declines in small business loan originations, indicating that it is costly for these businesses to find new lenders. Using confidential microdata from the Longitudinal Business Database, we find that the 2007-2009 lending shocks accounted for statistically significant, but economically small, declines in both small firm and overall employment. Predicted lending shocks affected lending but not employment from 1997-2007.

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File URL: http://arks.princeton.edu/ark:/88435/dsp016395w932w
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Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 584.

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Date of creation: Nov 2014
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Handle: RePEc:pri:indrel:584
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  17. Almeida, Heitor & Campello, Murillo & Laranjeira, Bruno & Weisbenner, Scott, 2012. "Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis," Critical Finance Review, now publishers, vol. 1(1), pages 3-58, January.
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