Tracing the Financial and Real Impact of a Credit Crunch PRELIMINARY ... PLEASE DO NOT CITE
From the great depression to recent recessions in Asia and the US, shocks to the supply of liquidity in the banking sector have often been blamed for creating and prolonging economic downturns. However separating the causal impact of such a “credit crunchfrom contemporaneous demand and productivity shocks hitting the economy has proven diffcult. In this paper we isolate this causal impact by using firm fixed effects and variation in the supply of liquidity across banks induced by their exposure to dollar deposits prior to nuclear tests by India and Pakistan. Using a data that links more than 61, 000 firms with banks in Pakistan, we show that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1％ larger decline in liquidity drops by an additional 0.37％. The e.ect is even stronger for smaller firms. Liquidity crunches to the bank also reduce the probability that it lends to a new client and that it continues to lend to an existing client. Tracing the impact of this liquidity shock further we find that firms are unable to hedge these shocks through other banks in the market as a firm’s total borrowing from the financial sector falls by 0.33％ for every 1％ drop in its pre-shock banks?deposits. These liquidity shocks also have real effects as they lead to an increase in the incidence of firm’s default by 1.2％ for every 1％ drop in the liquidity of its bank.
Asim Ijaz Khwaja Atif Mian
Kennedy School of Government, Harvard University, and Graduate School of Business
国际会议
昆明
英文
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）