Credit and recessions

Fabrizio Coricelli and Isabelle Roland ()
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Isabelle Roland: LSE

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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)
JEL-codes: F30 G01 O40 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2010-01
New Economics Papers: this item is included in nep-ban, nep-cba and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://mse.univ-paris1.fr/pub/mse/CES2010/10022.pdf (application/pdf)

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:mse:cesdoc:10022

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