Zombie Credit and (Dis-)Inflation: Evidence from Europe

Viral Acharya, Matteo Crosignani, Tim Eisert and Christian Eufinger

No 14960, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit†can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in ...

Keywords: Zombie lending; Under-capitalized banks; Disinflation; Firm productivity; Eurozone crisis (search for similar items in EconPapers)
JEL-codes: E31 E44 G21 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-bec, nep-eff, nep-mac, nep-mon and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
https://cepr.org/publications/DP14960 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Zombie Credit and (Dis‐)Inflation: Evidence from Europe (2024)
Working Paper: Zombie Credit and (Dis-)Inflation: Evidence from Europe (2020)
Working Paper: Zombie Credit and (Dis-)Inflation: Evidence from Europe (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14960

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14960

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().