The Real Effects of Credit Supply Shocks During the COVID-19 Pandemic

Alex Rivadeneira, Carlo Alcaraz, Nicolás Amoroso, Rodolfo Oviedo, Brenda Samaniego and Horacio Sapriza

No 2024-16, Working Papers from Banco de México

Abstract: We study the real effects of credit supply shocks during the COVID-19 pandemic in Mexico. To this end, we merge administrative micro-level data on the universe of bank loans to firms with matched employer-employee social security records. For each firm, we measure its exposure to time-varying credit supply shocks. We find that a negative credit shock of one standard deviation would have increased a firm's exit probability by 0.15 percentage points (pp) and decreased its annual employment growth by 1 pp. These effects were most pronounced among unincorporated businesses, small and young firms, and those in non-essential sectors. Negative credit supply shocks led to higher separation rates for workers with low layoff costs, like those with low tenure or temporary contracts.

Keywords: Banks; credit supply shocks; employment (search for similar items in EconPapers)
JEL-codes: D22 E24 E44 E51 G21 (search for similar items in EconPapers)
Date: 2024-12
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