The TFP Channel of Credit Supply Shocks

Nadav Ben Zeev
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Nadav Ben Zeev: Department of Economics, Ben-Gurion University of the Negev

The Review of Economics and Statistics, 2023, vol. 105, issue 2, 425-441

Abstract: Recent work stresses a potentially important relation between credit supply shocks and aggregate TFP based on factor misallocation. I take three steps to examine this relation. First, using state-of-the-art credit supply shock and aggregate TFP measures, I show that an adverse credit supply shock has a weak and very short-lived effect on aggregate TFP. Second, using firm-level data, I show that firm-level capital stock responses to an adverse credit supply shock produce an insignificant and negligible capital-misallocation–induced TFP response. Third, using employment data by fine firm-size category classification, I also find a negligible labor-misallocation–induced TFP response. These findings suggest that the TFP channel of credit supply shocks has a limited role in their transmission to the real economy.

Date: 2023
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