Increasing Business Uncertainty and Credit Conditions in Times of Low and High Uncertainty: Evidence from Firm-Level Survey Data
Christian Grimme () and
Steffen Henzel ()
No 8791, CESifo Working Paper Series from CESifo
We demonstrate that the impact of increases in uncertainty on bank credit conditions depends on the level of uncertainty. Using firm-level survey data, we document that a surge in business-specific uncertainty is particularly damaging when this uncertainty is low: low levels nearly triple the effect compared to high levels. The result is robust to controlling for recessionary periods. To provide an interpretation, we build and calibrate a stylized model in which bank lending is governed by expectations about the future level of business uncertainty. Increases in uncertainty serve as a signal to update these expectations. The model predicts that expectations are revised more strongly and, thus, lending drops more under low uncertainty.
Keywords: uncertainty; financial frictions; bank lending; survey data (search for similar items in EconPapers)
JEL-codes: C23 E32 G21 (search for similar items in EconPapers)
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