Working papers

Abstract. This paper studies the adverse long-term impact of a decline in lender health on aggregate productivity. I develop a simple model of productivity-enhancing investment where firm exposure to fragile banks leads to losses on both the intensive and the extensive margin. The model is consistent with the surge in exits and prolonged drop in productivity growth observed in Spain in the aftermath of the 2008 financial crisis. The model also highlights the existence of a bias in the measurement of observable TFP growth during an episode of heightened exit. Using data on Spanish firm-bank relationships and bank bailouts, I implement an exit-adjusted measure of productivity growth and use it to quantify the output loss attributable to the financial friction. A decade after the crisis, output growth from the extensive margin recovers but the same is not true of the output level. The output shortfall from the intensive margin proves much more persistent, with the growth gap only beginning to narrow towards the end of the sample period. Together, these dynamics amount to a cumulative loss of 3% of pre-crisis GDP over ten years.

Abstract. Spillover of economic outcomes often arises over multiple networks, and distinguishing their separate roles is important in empirical research. For example, the direction of spillover between two groups (such as banks and industrial sectors linked in a bipartite graph) has important economic implications, and a researcher may want to learn which direction is supported in the data. For this, we need to have an empirical methodology that allows for both directions of spillover simultaneously. In this paper, we develop a dynamic linear panel model and asymptotic inference with large n and small T, where both directions of spillover are accommodated through multiple networks. Using the methodology developed here, we perform an empirical study of spillovers between bank weakness and zombie-firm congestion in industrial sectors, using firm-bank matched data from Spain between 2005 and 2012. Overall, we find that there is positive spillover in both directions between banks and sectors.

Internal devaluation and unemployment in the Euro area (with Olivier Jeanne)

Business dynamism in recessions and recoveries