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Bankruptcy Resolution and Credit Cycles

In: NBER Macroeconomics Annual 2024, volume 39

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  • Martin Kornejew
  • Chen Lian
  • Yueran Ma
  • Pablo Ottonello
  • Diego J. Perez

Abstract

We study how the macroeconomic dynamics following credit cycles vary with business bankruptcy institutions. Using data on bankruptcy efficiency and business credit around the world, we document that business credit booms are followed by severe declines in output, investment, and consumption in environments with poorly functioning business bankruptcy. On the contrary, in settings with well functioning business bankruptcy, the aftermath of credit booms is characterized by moderate changes in economic activities. We use a simple model to lay out how and when efficient bankruptcy systems can mitigate the negative consequences of credit booms.
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  • Martin Kornejew & Chen Lian & Yueran Ma & Pablo Ottonello & Diego J. Perez, 2024. "Bankruptcy Resolution and Credit Cycles," NBER Chapters, in: NBER Macroeconomics Annual 2024, volume 39, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14994
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    Cited by:

    1. Dean Corbae, 2024. "Comment on "Bankruptcy Resolution and Credit Cycles"," NBER Chapters, in: NBER Macroeconomics Annual 2024, volume 39, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G3 - Financial Economics - - Corporate Finance and Governance

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