Student Faculty Macro Lunch: ZOOM

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Submitted by Brandon Eltiste on August 24, 2020
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Tuesday, September 22, 2020 - 12:00
About this Event

Pascal Paul, Federal Reserve Bank of San Francisco

The Credit Line Channel

Aggregate bank lending to firms expands following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening, at odds with canonical models. Using loan-level supervisory data, we show that these dynamics are driven by draws on credit lines by large firms. Banks that experience larger drawdowns restrict term lending more — an externality onto smaller firms. Using a structural model, we show that credit lines are necessary to reproduce the flow of credit toward less constrained firms after adverse shocks. While credit lines increase total credit growth, their redistributive effects exacerbate the fall in investment.