## Firm Financing During Sudden Stops: Can Governments Substitute Markets?

_IMF Working Papers, April 11, 2025_

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## Bibliographic details
- Authors: Miguel Acosta-Henao, Andrés Fernández, Patricia Gomez-Gonzalez, Sebnem Kalemli-Ozcan
- Published: April 11, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229005128.001

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### Summary and main findings
- The paper analyzes whether central bank credit lines and government-backed guarantees helped mitigate the impact of the pandemic's sudden stop, characterized by the abrupt withdrawal of international capital, using administrative data on the universe of Chilean firms.
- Regression discontinuity design evidence: eligible firms increased domestic borrowing at lower costs.
- Policies reduced the cost of domestic debt compared to foreign debt, easing access to capital.
- An open economy model explains complementarity of credit lines and guarantees in:
  - relaxing collateral constraints;
  - reducing financial intermediaries' risk aversion;
  - boosting domestic credit supply amidst shrinking international flows.

### Methodology
- Empirical strategy: regression discontinuity design using administrative data covering the universe of Chilean firms.
- Identifies causal impact of eligibility for interventions on domestic borrowing volumes and borrowing costs.

### Mechanisms and theoretical framework
- Uses an open economy model to interpret empirical results.
- Model highlights how credit lines and government guarantees operate together to:
  - relax collateral constraints for firms;
  - lower risk premia or risk aversion of financial intermediaries;
  - increase domestic credit supply when international capital flows contract.

### Policy implications
- Central bank credit lines and government-backed guarantees can act as partial substitutes for international capital during sudden stops by:
  - supporting domestic borrowing at lower costs for eligible firms;
  - shifting financing away from relatively more expensive foreign debt toward domestic debt;
  - stabilizing domestic credit supply through reduced intermediary risk aversion and improved collateral conditions.

### Key statistics and publication metadata
- Authors: Miguel Acosta-Henao, Andrés Fernández, Patricia Gomez-Gonzalez, Sebnem Kalemli-Ozcan
- Date: April 11, 2025
- Pages: 72
- Volume: 2025
- Issue: 072
- Series: Working Paper No. 2025/072
- DOI: https://doi.org/10.5089/9798229005128.001
- Stock No: WPIEA2025072
- ISBN: 9798229005128
- ISSN: 1018-5941
- Subject tags: Credit, Domestic credit, Domestic debt, External debt, Financial institutions, Loans, Money, Public debt
- Keywords: Capital flows, Credit, Domestic credit, Domestic debt, finance mix, firm financing, FOGAPE-COVID credit, foreign currency, Global, governments substitute market, i. firm, Loans, open economy model, unconventional policies

*IMF Working Paper — Firm Financing During Sudden Stops: Can Governments Substitute Markets? (Working Paper No. 2025/072, April 11, 2025).*

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_Source: https://www.imf.org/en/publications/wp/issues/2025/04/11/firm-financing-during-sudden-stops-can-governments-substitute-markets-565878_