Credit and recessions

Fabrizio Coricelli and Isabelle Roland ()
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Isabelle Roland: LSE - London School of Economics and Political Science

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Abstract: The paper develops a simple model on the asymmetric role of credit markets in output fluctuations. When credit markets are underdeveloped and enterprise activity is financed by trade credit, shocks may induce a break-up of credit and production chains, leading to sudden and sharp contractions. The development of a banking sector can reduce the probability of such collapses and hence plays a crucial role in softening output declines. However, the banking sector becomes a shock amplifier when shocks originate in the financial sector. Using industry-level data across a large cross-section of countries, we provide evidence in support of the model's predictions.

Keywords: Credit chains; trade credit; recessions; financial development (search for similar items in EconPapers)
Date: 2010-01
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00469521
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Citations: View citations in EconPapers (1)

Published in 2010

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Related works:
Working Paper: Credit and recessions (2010)
Working Paper: Credit and recessions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00469521

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