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Do Credit Market Shocks Affect the Real Economy? Quasi-experimental Evidence from the Great Recession and “Normal” Economic Times†

Do Credit Market Shocks Affect the Real Economy? Quasi-experimental Evidence from the Great... AbstractUsing comprehensive data on bank lending and establishment-level outcomes from 1997–2010, this paper finds that small business lending is an unimportant determinant of small business and overall economic activity. A shift-share style research design is implemented to predict county-level lending shocks using variation in preexisting bank market shares and bank supply shifts. Counties with negative predicted lending shocks experienced declines in small business loan originations, indicating that it is costly to switch lenders. However, small business loan originations have an economically insignificant and generally statistically insignificant impact on both small firm and overall employment during the Great Recession and normal times. (JEL E32, E44, E52, G21, G32, L25) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

Do Credit Market Shocks Affect the Real Economy? Quasi-experimental Evidence from the Great Recession and “Normal” Economic Times†

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Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
1945-7731
DOI
10.1257/pol.20160005
Publisher site
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Abstract

AbstractUsing comprehensive data on bank lending and establishment-level outcomes from 1997–2010, this paper finds that small business lending is an unimportant determinant of small business and overall economic activity. A shift-share style research design is implemented to predict county-level lending shocks using variation in preexisting bank market shares and bank supply shifts. Counties with negative predicted lending shocks experienced declines in small business loan originations, indicating that it is costly to switch lenders. However, small business loan originations have an economically insignificant and generally statistically insignificant impact on both small firm and overall employment during the Great Recession and normal times. (JEL E32, E44, E52, G21, G32, L25)

Journal

American Economic Journal: Economic Policy – American Economic Association

Published: Feb 1, 2020

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