Zombie Lending and Policy Traps

Viral Acharya, Simone Lenzu and Olivier Wang

No 29606, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model how accommodative policy can become trapped due to credit misallocation and its spillovers, as witnessed in Japan in the 1990s and in Europe in the 2010s. Following large negative shocks, the effective lower bound prevents stimulating bank lending through rate cuts. Unconventional policies that subsidize risk-taking such as regulatory forbearance can still expand credit, but excessive accommodation induces poorly-capitalized banks to lend to low-productivity “zombie” rms. Due to persistent congestion externalities of zombie lending on healthier rms, policymakers avoiding short-term recessions can get trapped into protracted low rates, excessive forbearance, and persistent output losses.

JEL-codes: E44 E52 G01 G21 G28 G33 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mac and nep-mon
Note: CF EFG ME
References: Add references at CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.nber.org/papers/w29606.pdf (application/pdf)

Related works:
Working Paper: Zombie Lending and Policy Traps (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29606

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29606

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().