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The Economic Effects of COVID-19 and Credit Constraints: Evidence from Italian Firms’ Expectations and Plans

Pierluigi Balduzzi, Emanuele Brancati (), Marco Brianti () and Fabio Schiantarelli ()

No 1013, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We investigate the economic effects of the COVID-19 pandemic and the role played by credit constraints in the transmission mechanism, using a novel survey of expectations and plans of Italian firms, taken just before and after the outbreak. Most firms revise downward their expectations for sales, orders, employment, and investment, while prices are expected to increase at a faster rate than previously anticipated, but there is geographical and sectoral heterogeneity in the magnitude of the effects. Importantly, we show that credit constraints amplify the effects on factor demand and sales of the shocks associated with COVID-19. Moreover, credit-constrained firms expect to charge higher prices, relative to unconstrained firms. The search for and availability of liquidity is a key determinant of firms’ plans. Finally, there is evidence that both supply and demand shocks play a role in shaping firms’ expectations and plans, with supply shocks being slightly more important in the aggregate.

Keywords: COVID-19; pandemic; firms’ expectations; firms’ plans; credit constraints; prices; employment; investment; sales; orders (search for similar items in EconPapers)
JEL-codes: E2 E3 G30 I10 (search for similar items in EconPapers)
Date: 2020-07-27, Revised 2020-08-22
New Economics Papers: this item is included in nep-eur and nep-mac
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