Motivated by the recent European debt crisis, this paper investigates the scope for a bailout guarantee in a sovereign debt crisis. Defaults may arise from negative income shocks, government impatience or a "sunspot"-coordinated buyers strike. We introduce a bailout agency, and characterize the...

Credit constraints are central to development economics theory. However, there is scant direct evidence that supports the existence of such constraints. Traditional tests observe how consumption changes after an unexpected income shock. Such changes can also result from myopic behavior or...

We propose a novel mechanism, “financial dampening,” whereby loan retrenchment by banks attenuates the effectiveness of monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk-sharing among subsidiaries of bank holding companies (BHCs). We derive an...

This paper analyses the role of bank-related constraints in explaining the sharp slowdown in bank lending to non-financial corporations in Germany during the recent financial crisis. We use a panel approach based on a unique data set which matches the individual responses of the banks...

This paper provides measures of credit rationing in the market of term loans to Italian non-financial firms. We identify non-price allocations of credit by exploiting a unique bankfirm dataset of more than 5 million observations, which matches the quantity and the cost of credit available from...

The paper estimates the effects on the real economy of the sharp reduction in the supply of credit following the 2008 financial crisis. We develop a measure of local credit supply that is based on the market shares of the banks that serve a local economy and the national change in each bank's...

Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption and recessions in the sample extended to cover the 2007-09...

Are firms more resilient to systemic banking crises in economies with higher levels of social trust? Using firm-level data in 34 countries from 1990 through 2011, we find that liquidity-dependent firms in high-trust countries obtain more trade credit and suffer smaller drops in profits and...

This paper discusses findings relative to the impact of borrowing constraints on homeownership in the U.S. in the aftermath of the 2008 financial crisis. While homeownership declines and tightened credit are evident, the role the tightening of credit has had on the probability of individual...

I study credit rationing in small firm bank relationships by using a unique data set of matched loan applications and contracts. I establish the degree of credit rationing by relating a firm's requested loan amount to the bank's granted amount. In line with theoretical predictions, credit...