We would like to thank Kenneth West (the Editor), two anonymous referees, Olivier Blanchard, Carlo Cottarelli, Stijn Claessens, Giovanni Dell’Ariccia, Peter Doyle, Vikram Haksar, Randall Kroszner, Lamin Leigh, Andrea Maechler, David Marston, Paulo Mauro, Martin Mühleisen, Fabiano Rodriguez Bastos, David Romer, Sweta Saxena, Anna Ter-Martirosyan, Hui Tong, Kenichi Ueda, Jose Viñals, and Jaejoon Woo for useful comments and suggestions, and Jeanne Verrier for excellent research assistance. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or the IMF Board.
The Real Effects of Financial Sector Interventions during Crises
Article first published online: 22 JAN 2013
© 2013 The Ohio State University
Journal of Money, Credit and Banking
Volume 45, Issue 1, pages 147–177, February 2013
How to Cite
LAEVEN, L. and VALENCIA, F. (2013), The Real Effects of Financial Sector Interventions during Crises. Journal of Money, Credit and Banking, 45: 147–177. doi: 10.1111/j.1538-4616.2012.00565.x
- Issue published online: 22 JAN 2013
- Article first published online: 22 JAN 2013
- Received May 5, 2011; and accepted in revised form March 28, 2012.
- banking crisis;
- government intervention;
- stabilization policies;
- crisis resolution
We assess the importance of supply-side credit market frictions by studying the impact of bank recapitalization on firm growth in 50 countries during the recent crisis. Our identification strategy exploits the crisis as a shock to credit supply and combines an exogenous measure of firms’ dependence on external financing with policy interventions aimed at restoring bank capital. We find that the growth of financially dependent firms is disproportionately positively affected by bank recapitalization. This effect is quantitatively important and robust to controlling for other policies. These results provide new evidence of the influence of credit market frictions on economic activity.