Seminarios

A large body of cross-sectional evidence has established that cuts in the supply of bank lending affect firm outcomes and the allocation of credit. However, it is unclear what these results imply for the effect on aggregate output of a cut in aggregate bank lending. I estimate this aggregate effect using a new general equilibrium model with multibank firms, relationship banking, endogenous credit dependence, and bank market power. I use a set of cross-sectional patterns to estimate the key structural parameters of the model. The effect of an aggregate lending cut on aggregate output is large: a one per- cent decline in aggregate bank lending supply reduces aggregate output by 0.2 percent. The structure of labor and credit markets is important to reach this answer. Under an alternative parametrization of the model that ignores input markets frictions the response of aggregate output is three times smaller. Under my preferred parametrization, the cross-sectional effects survive aggregation in general equilibrium. Instead, with frictionless input markets the cross-sectional patterns overestimate the aggregate response by a factor of five.