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The persistence of a banking crisis

Huber, Kilian (2015) The persistence of a banking crisis. CFM Discussion Paper Series (CFM-DP2015-32). Centre For Macroeconomics, London, UK.

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Abstract

This paper analyses the effects of bank lending on GDP and employment. Following losses on international financial markets in 2008/09, a large German bank cut its lending to the German economy. I exploit variation in dependence on this bank across counties. To address the correlation between county GDP growth and dependence on this bank, I use the distance to the closest of three temporary, historic bank head offices as instrumental variable. The results show that the effects of the lending cut were persistent, and resembled the growth patterns of developed economies during and after the Great Recession. For two years, the lending cut reduced GDP growth. Thereafter, affected counties remained on a lower, parallel trend. The firm results exhibit similar dynamics, and show that the lending cut primarily affected capital expenditures. Overall, the lending cut reduced aggregate German GDP in 2012 by 3.9 percent, and employment by 2.3 percent. This shows that a single bank can persistently shape macroeconomic growth.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Discussio...
Additional Information: © 2015 The Author
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 12 Mar 2018 16:34
Last Modified: 15 Aug 2019 23:27
URI: http://eprints.lse.ac.uk/id/eprint/87162

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