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Working Paper
What is the Impact of a Major Unconventional Monetary Policy Intervention?
How does the credible announcement of an unconventional monetary policy intervention affect bank lending standards during crises? We use a major central bank announcement, the "whatever it takes" speech of the European Central Bank President that boosted the capital of banks, as a natural experiment. We compare changes in lending standards of subsidiaries of euro area versus other banks in a third country, Mexico. The speech reversed a prior trend of euro area banks augmenting their risk-taking via loan growth, lending rates, and credit risk. Our findings show that policies that amount to ...
Briefing
Credit Supply Shocks During a Nonfinancial Recession
Credit supply in Mexico tightened during the nonfinancial COVID-19 recession, not due to banks' financial health but primarily due to heightened risk aversion.Negative credit supply shocks led to reduced firm employment and increased firm exit probability, especially among financially constrained firms (those that were smaller, younger and had high external financial dependence).The employment decline was largely driven by increased job outflows (separations) rather than reduced job inflows (new hires), particularly for women and low-tenure and temporary workers in small, young firms.Credit ...
Working Paper
Credit Supply Shocks During a Non-Financial Recession
We study the drivers and real effects of credit supply shocks during a major non-financial recession, the COVID-19 crisis. Using data on the universe of bank loans in Mexico, we isolate the supply-driven component of credit variations. Credit supply conditions deteriorated in this period, driven by banks' heightened risk aversion. Using matched employer-employee records, we find that negative credit supply shocks reduced firms' employment and increased their exit probability. These effects are larger among financially constrained firms and workers with lower separation costs. In the ...