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The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk

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Listed:
  • Federico Huneeus
  • Joseph P. Kaboski
  • Mauricio Larrain
  • Sergio L. Schmukler
  • Mario Vera

Abstract

We study the distribution of credit during crisis times and its impact on leverage and risk at the firm and macroeconomic levels. We analyze a large-scale COVID-19 public credit guarantee program in Chile, using novel transaction-level credit data matched with tax data. We find that demand drives the increase in leverage, especially for riskier firms, but several factors keep aggregate risk small. Aggregate risk increases substantially when credit limits are relaxed, but reallocating the existing program credit toward riskier firms or raising the expected default increases risk much less. A quantitative model of firms and endogenous default confirms our empirics.

Suggested Citation

  • Federico Huneeus & Joseph P. Kaboski & Mauricio Larrain & Sergio L. Schmukler & Mario Vera, 2022. "The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk," NBER Working Papers 29774, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29774
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    3. Giuseppe Cascarino & Raffaele Gallo & Francesco Palazzo & Enrico Sette, 2022. "Public guarantees and credit additionality during the Covid-19 pandemic," Temi di discussione (Economic working papers) 1369, Bank of Italy, Economic Research and International Relations Area.

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G01 - Financial Economics - - General - - - Financial Crises

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