The Credit-Output Relationship During the Recovery from Recession

The Great Recession has generated renewed interest in the phenomenon of creditless recoveries. This paper studies the mechanisms behind such phenomenon, analyzing data on industries for a large set of countries over a forty year period from 1963 to 2003. We find that during creditless recoveries the...

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Bibliographic Details
Published in:Open economies review 2015-07, Vol.26 (3), p.551-579
Main Authors: Coricelli, Fabrizio, Frigerio, Marco
Format: Article
Language:English
Subjects:
Bank loans
Collateral
Credit market
Development Economics
Econometrics
Economic analysis
Economic crisis
Economic models
Economic Policy
Economic recovery
Economic statistics
Economic theory
Economics
Economics and Finance
Emerging markets
European Integration
Financial crisis
GDP
Global economy
Great Recession
Gross Domestic Product
Humanities and Social Sciences
International
International Economics
International finance
Investments
Liquidity
Macroeconomics/Monetary Economics//Financial Economics
Open economies
Recession
Recessions
Research Article
Securities markets
Studies
Working capital
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Summary:The Great Recession has generated renewed interest in the phenomenon of creditless recoveries. This paper studies the mechanisms behind such phenomenon, analyzing data on industries for a large set of countries over a forty year period from 1963 to 2003. We find that during creditless recoveries there is a significant reallocation of resources away from sectors that are more dependent on bank credit, both for their investments and for their short-term liquidity needs. The adverse effects of credit constraints are softened in sectors that rely more on alternative sources of financing, such as trade credit, or in sectors that have more favorable access to credit because of higher collateral. We thus conclude that creditless recoveries do not simply reflect a natural process of deleveraging, but they may imply significant inefficiencies in the allocation of resources.
ISSN:0923-7992
1573-708X
DOI:10.1007/s11079-015-9354-z