Abstract
This paper studies the impact of shocks to banks' balance sheets on real economic activity. The sample consists of 18 OECD countries observed annually from 1979 to 2003. Using the Rajan-Zingales method, I find that industries that depend more heavily on external finance respond more strongly to bank income shocks, suggesting that banking shocks propagate to the real economy. The bank effect lasts for 2 years, but it is economically significant mainly for large shocks, which are relatively rare. Similar findings are obtained by comparing durable versus non-durable goods and by estimating aggregate bank effects.
| Original language | English |
|---|---|
| Pages (from-to) | 556-578 |
| Number of pages | 23 |
| Journal | Journal of International Money and Finance |
| Volume | 32 |
| Issue number | 1 |
| DOIs | |
| State | Published - 2013 |
Bibliographical note
Funding Information:I would like to thank Joseph Zeira, Yishay Yafeh, Michael Beenstock, Saul Lach, David Genesove, Katherine Eyal and an anonymous referee for helpful comments. Special thanks to Yaniv Reingewertz and Sarit Weisburd for data assistance. I thank the Jean Monnet Fellowship of the European University Institute, the Blazuska fellowship and the Stoessel fellowship of the Hebrew University, and the Van Leer Jerusalem Institute for financial support. All errors are mine.
Funding
I would like to thank Joseph Zeira, Yishay Yafeh, Michael Beenstock, Saul Lach, David Genesove, Katherine Eyal and an anonymous referee for helpful comments. Special thanks to Yaniv Reingewertz and Sarit Weisburd for data assistance. I thank the Jean Monnet Fellowship of the European University Institute, the Blazuska fellowship and the Stoessel fellowship of the Hebrew University, and the Van Leer Jerusalem Institute for financial support. All errors are mine.
| Funders | Funder number |
|---|---|
| European University Institute | |
| Hebrew University of Jerusalem |
Keywords
- Bank ROA
- Bank capital
- Bank lending channel
- Bank reserves
- Banking crisis
- Business cycle
- External finance
- Financial accelerators
- Rajan-Zingales
- Reverse causality