Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and 'Normal' Economic Times

摘要

We estimate the effect of the sharp reduction in credit supply following the 2008 financial crisis on the real economy. The identification strategy relies on the substantial heterogeneity in the degree to which banks cut lending over this period. Specifically, we predict changes in county-level small business lending over 2007-2009 by estimating the national change in each bank’s lending that is attributable to supply factors (e.g., due to differences in the crisis' effect on their balance sheets) and, subsequently, allocating this quantity to counties based on the banks' pre-crisis market shares. We find that in 2008, 2009, and 2010, this measure is highly predictive of total county-level small business loan originations indicating that, at least in the near term, a firm cannot easily find a new lender if its bank limits access to credit. Additionally, we find that areas with more exposure to banks that cut small business lending during this period experience depressed employment and business formation. Upper bound estimates suggest that the 2007-2009 decline in small business lending accounted for up to 20% of the decline in employment in firms with less than 20 employees, 16% of the total employment loss, and 30% of the decline in inflation adjusted aggregate wages during this period. Finally, we note that the relationship between lending supply and economic activity is not evident in the 1997-2007 period, underscoring the unique circumstances during the Great Recession.