Credit Supply Shocks During a Non-Financial Recession

Carlo Alcaraz Pribaz, Nicolas Amoroso, Rodolfo Oviedo Moguel, Alex Rivadeneira, Brenda Samaniego de la Parra and Horacio Sapriza
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Brenda Samaniego de la Parra: https://keough.nd.edu/about/faculty-staff-directory/brenda-samaniego-de-la-parra/

No 25-11, Working Paper from Federal Reserve Bank of Richmond

Abstract: We study the drivers and real effects of credit supply shocks during a major non-financial recession, the COVID-19 crisis. Using data on the universe of bank loans in Mexico, we isolate the supply-driven component of credit variations. Credit supply conditions deteriorated in this period, driven by banks' heightened risk aversion. Using matched employer-employee records, we find that negative credit supply shocks reduced firms' employment and increased their exit probability. These effects are larger among financially constrained firms and workers with lower separation costs. In the aggregate, negative credit shocks account for one-third of the total employment decline for small firms.

Keywords: Recession; banking; credit supply; risk tolerance; rm dynamics; job destruc tion (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 J23 (search for similar items in EconPapers)
Pages: 76
Date: 2025-08-25
New Economics Papers: this item is included in nep-lma
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Journal Article: Credit Supply Shocks During a Nonfinancial Recession (2025)
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DOI: 10.21144/wp25-11

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