Firm Financing During Sudden Stops: Can Governments Substitute Markets?

Miguel Acosta-Henao, Andrés Fernández, Patricia Gomez-Gonzalez and Sebnem Kalemli-Ozcan

No 2025/072, IMF Working Papers from International Monetary Fund

Abstract: We analyze whether central bank credit lines and government-backed guarantees helped mitigate the impact of the pandemic's sudden stop, marked by the abrupt withdrawal of international capital, using administrative data on the universe of Chilean firms. Our regression discontinuity design reveals that eligible firms increased domestic borrowing at lower costs. These policies reduced the cost of domestic debt compared to foreign debt, easing access to capital. An open economy model explains the complementarity of both interventions--credit lines and guarantees--in relaxing collateral constraints, reducing financial intermediaries' risk aversion and boosting domestic credit supply amidst shrinking international flows.

Keywords: Capital flows; firm financing; unconventional policies; foreign currency; governments substitute market; open economy model; finance mix; FOGAPE-COVID credit; i. firm; Credit; Domestic credit; Domestic debt; Loans; Global (search for similar items in EconPapers)
Pages: 72
Date: 2025-04-11
New Economics Papers: this item is included in nep-opm
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