Do credit market shocks affect the real economy? Quasi-experimental evidence from the great recession and "normal" economic times

Michael Greenstone, Alexandre Mas, Hoai Luu Nguyen

Research output: Contribution to journalArticlepeer-review

71 Scopus citations

Abstract

Using 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).

Original languageEnglish (US)
Pages (from-to)200-225
Number of pages26
JournalAmerican Economic Journal: Economic Policy
Volume12
Issue number1
DOIs
StatePublished - Feb 1 2020

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance

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