Do Credit Market Shocks Affect the Real Economy?

Download or read book Do Credit Market Shocks Affect the Real Economy? written by Michael Greenstone and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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. Keywords: Great Recession, bank lending, employment, small businesses. JEL Classification: D22, D53, G01, G1, G21, J01, J23