Credit Conditions and Recoveries from Recessions Associated with Financial Crises

Author/Editor:

Prakash Kannan

Publication Date:

March 1, 2010

Electronic Access:

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Summary:

Recoveries from recessions associated with a financial crisis tend to be sluggish. In this paper, we present evidence that stressed credit conditions are an important factor constraining the pace of recovery. In particular, using industry-level data, we find that industries relying more on external finance grow more slowly than other industries during recoveries from recessions associated with financial crises. Additional tests, based on establishment size, on alternative definitions of financial crises, and on corporate-government interest rate spreads, support the findings. Moreover, for subsets of industries where financial frictions are more severe, we find much stronger differential growth effects.

Series:

Working Paper No. 2010/083

Subject:

Bank credit Banking crises Business cycles Credit Financial crises

English

Publication Date:

March 1, 2010

ISBN/ISSN:

9781451982657/1018-5941

Stock No:

WPIEA2010083

Pages:

34

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