Bankruptcy Resolution and Credit Cycles

Martin Kornejew, Chen Lian, Yueran Ma, Pablo Ottonello and Diego J. Perez

No 32556, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how the macroeconomic dynamics following credit cycles vary with business bankruptcy institutions. Using data on bankruptcy efficiency and business credit around the world, we document that business credit booms are followed by severe declines in output, investment, and consumption in environments with poorly functioning business bankruptcy. On the contrary, in settings with well functioning business bankruptcy, the aftermath of credit booms is characterized by moderate changes in economic activities. We use a simple model to lay out how and when efficient bankruptcy systems can mitigate the negative consequences of credit booms.

JEL-codes: E60 G01 G3 (search for similar items in EconPapers)
Date: 2024-06
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Forthcoming: Bankruptcy Resolution and Credit Cycles , Martin Kornejew, Chen Lian, Yueran Ma, Pablo Ottonello, Diego J. Perez. in NBER Macroeconomics Annual 2024, volume 39 , Eichenbaum, Leahy, and Ramey. 2024

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