The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles

Efraim Benmelech, Ralf R. Meisenzahl and Rodney Ramcharan

No 22148, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Illiquidity in short-term credit markets during the financial crisis might have severely curtailed the supply of non-bank consumer credit. Using a new data set linking every car sold in the United States to the credit supplier involved in each transaction, we find that the collapse of the asset-backed commercial paper market reduced the financing capacity of such non-bank lenders as captive leasing companies in the automobile industry. As a result, car sales in counties that traditionally depended on non-bank lenders declined sharply. Although other lenders increased their supply of credit, the net aggregate effect of illiquidity on car sales is large and negative. We conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market. These results also imply that interventions aimed at arresting illiquidity in short-term credit markets might have helped to contain the real effects of the crisis.

JEL-codes: G01 G23 L62 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-mkt and nep-tre
Note: CF EFG IO ME
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Citations: View citations in EconPapers (8)

Published as Efraim Benmelech & Ralf R. Meisenzahl & Rodney Ramcharan, 2017. "The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 317-365.

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