Do Credit Market Shocks affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times

NBER Working Paper No. 20704

Issued in November 2014

NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Labor Studies, Monetary Economics



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.

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Document Object Identifier (DOI): 10.3386/w20704

Published: Michael Greenstone & Alexandre Mas & Hoai-Luu Nguyen, 2020. "Do Credit Market Shocks Affect the Real Economy? Quasi-experimental Evidence from the Great Recession and “Normal” Economic Times," American Economic Journal: Economic Policy, vol 12(1), pages 200-225. citation courtesy of

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