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Disentangling the effects of a banking crisis: evidence from German firms and counties

Huber, Kilian (2018) Disentangling the effects of a banking crisis: evidence from German firms and counties. American Economic Review, 108 (3). pp. 868-898. ISSN 0002-8282

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Identification Number: 10.1257/aer.20161534

Abstract

Lending cuts by banks directly affect the firms borrowing from them, but also indirectly depress economic activity in the regions in which they operate. This paper moves beyond firm-level studies by estimating the effects of an exogenous lending cut by a large German bank on firms and counties. I construct an instrument for regional exposure to the lending cut based on a historic, postwar breakup of the bank. I present evidence that the lending cut affected firms independently of their banking relationships, through lower aggregate demand and agglomeration spillovers in counties exposed to the lending cut. Output and employment remained persistently low even after bank lending had normalized. Innovation and productivity fell, consistent with the persistent effects.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2018 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, and Changes
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R23 - Regional Migration; Regional Labor Markets; Population
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 10 Apr 2018 13:18
Last Modified: 20 Apr 2019 00:06
URI: http://eprints.lse.ac.uk/id/eprint/87410

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