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Financial shocks, firm credit and the Great Recession

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  • Mehrotra, Neil
  • Sergeyev, Dmitriy

Abstract

The creation and destruction margins of employment (job flows) can be used to measure the employment effects of disruptions to firm credit. Using a firm dynamics model, we establish that a tightening of credit to firms reduces employment primarily by reducing gross job creation, exhibiting stronger effects at new, young, and middle-sized firms. The firm credit channel accounts for, at most, 18%, of the decline in US employment in the Great Recession. Using MSA-level job flows data, we show that the job flows response to identified credit shocks is consistent with our model’s predictions.

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  • Mehrotra, Neil & Sergeyev, Dmitriy, 2021. "Financial shocks, firm credit and the Great Recession," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 296-315.
    • Handle: RePEc:eee:moneco:v:117:y:2021:i:c:p:296-315
    DOI: 10.1016/j.jmoneco.2020.01.008
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    3. Carlos Giraldo & Iader Giraldo & Jose E. Gomez-Gonzalez & Jorge M. Uribe, 2023. ""US uncertainty shocks, credit, production, and prices: The case of fourteen Latin American countries"," IREA Working Papers 202302, University of Barcelona, Research Institute of Applied Economics, revised Feb 2023.
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    More about this item

    Keywords

    Job flows; Financial frictions; Great Recession;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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