Abstract
To measure the real effects of credit-supply disruptions during financial crises, we develop a quantitative model of firm investment and debt that features firm heterogeneity and financial frictions. We apply this framework to a novel, census-type panel dataset for manufacturing firms and find that the contraction in credit supply during the Greek Depression was responsible for 9-36% of the drop in corporate investment after controlling for changes in investment opportunities and uncertainty. Our empirical framework does not require cross-sectional variation in credit-supply conditions to separate the demand for credit from its supply. This feature is particularly useful for studying financial crises when credit-supply shocks are likely to have a substantial common component. Our model also helps to explore the effectiveness of counterfactual policies of fiscal stimulus or debt forgiveness for boosting corporate investment.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
