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Credit Conditions and Recoveries from Recessions Associated with Financial Crises

Author/Editor: Kannan, Prakash
Authorized for Distribution: March 1, 2010
Electronic Access: Free Full Text (PDF file size is 4,548KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

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.
 
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Series: Working Paper No. 10/83
Subject(s): Bank credit | Banking crisis | Business cycles | Credit | Developed countries | Economic models | Economic recession | Economic recovery | External financing | Financial crisis | Industrial sector | Production growth
Author's keyword(s): Recoveries; Financial Crises; External Finance
 
English  
    Published:   March 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010083   Pages:   34
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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