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Discussion Paper

How Does Zombie Credit Affect Inflation? Lessons from Europe


Abstract: Even after the unprecedented stimulus by central banks in Europe following the global financial crisis, Europe’s economic growth and inflation have remained depressed, consistently undershooting projections. In a striking resemblance to Japan’s “lost decades,” the European economy has been recently characterized by persistently low interest rates and the provision of cheap bank credit to impaired firms, or “zombie credit.” In this post, based on a recent staff report, we propose a “zombie credit channel” that links the rise of zombie credit to dis-inflationary pressures.

Keywords: zombie lending; undercapitalized banks; disinflation; firm productivity; Eurozone;

JEL Classification: G1; G21;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2020-12-22

Number: 20201222