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Credit Supply Shocks and Prices: Evidence from Danish Firms

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  • Tobias Renkin
  • Gabriel Züllig

Abstract

We study the response of firms' output prices to a cut in credit supply. We combine data on loans between Danish firms and banks with survey-based producer prices and transaction-based export unit values. Exploiting banks' heterogeneous exposure to the global financial crisis, we show that loans to firms with relationships to exposed banks drop and lending rates increase. In response, firms raise prices by 3–5 percent. This effect is decreasing in the elasticity of firms' demand but positive for most industrial production. Our results show that firms increase prices to raise cash when external sources of liquidity dry up.

Suggested Citation

  • Tobias Renkin & Gabriel Züllig, 2024. "Credit Supply Shocks and Prices: Evidence from Danish Firms," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(2), pages 1-28, April.
    • Handle: RePEc:aea:aejmac:v:16:y:2024:i:2:p:1-28
    DOI: 10.1257/mac.20220079
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    References listed on IDEAS

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    2. Elena Bobeica & Marek Jarociński, 2019. "Missing Disinflation and Missing Inflation: A VAR Perspective," International Journal of Central Banking, International Journal of Central Banking, vol. 15(1), pages 199-232, March.
    3. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 675-727.
    4. Simon Gilchrist & Egon Zakrajsek, 2012. "Credit Spreads and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 102(4), pages 1692-1720, June.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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