The Long-Run Real Effects of Banking Crises: Firm-Level Investment Dynamics and the Role of Wage Rigidity

Carlo Wix

No 2023-019, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: I study the long-run effects of credit market disruptions on real firm outcomes and how these effects depend on nominal wage rigidity at the firm level. Exploiting variation in firms' refinancing needs during the global financial crisis, I trace out firms' investment and growth trajectories in response to a credit supply shock. Financially shocked firms exhibit a temporary investment gap for two years, resulting in a persistent accumulated growth gap six years after the crisis. Shocked firms with rigid wages exhibit a significantly steeper drop in investment and an additional long-run growth gap relative to shocked firms with flexible wages.

Keywords: Financial Crises; Bank Lending; Real Effects; Firm Investment; Wage Rigidity (search for similar items in EconPapers)
JEL-codes: E22 E24 E51 G01 G21 G31 (search for similar items in EconPapers)
Pages: 62 p.
Date: 2023-04-11
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-inv
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https://www.federalreserve.gov/econres/feds/files/2023019pap.pdf (application/pdf)

Related works:
Working Paper: The long-run real effects of banking crises: Firm-level investment dynamics and the role of wage rigidity (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-19

DOI: 10.17016/FEDS.2023.019

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