Ricardo Correa, Julian di Giovanni, Linda S. Goldberg, and Camelia Minoiu
Working Paper 2024-16a
October 2024 (Revised February 2025)
Full text
Abstract:
This paper uses U.S. credit register data and the 2018–19 Trade War to study the effects of uncertainty on domestic credit supply. Exploiting differences in banks' ex-ante exposure to trade uncertainty, we find that increased uncertainty is associated with a broad lending contraction across their customer firms. This result is consistent with banks responding to uncertainty with wait-and-see behaviors, where more exposed banks curtail risky exposures, reduce loan maturities, and adjust loan supply along both intensive and extensive margins. The lending contraction is larger for more capital-constrained banks and has significant real effects, especially for bank-dependent firms.
JEL classification: G21, F34, F42
Key words: uncertainty, bank loans, trade finance, credit supply, trade war
https://doi.org/10.29338/wp2024-16
The authors are grateful to Michelle Alexopoulos, Chris Boehm, Nick Bloom, Valentina Bruno, Steven Davis, Lorenzo Garlappi, Kristine Hankins, Tarek Hassan, Dalida Kadyrzhanova, Peter Karadi, Matteo Iacovellio, Abel Iglesias, Seung Lee, Ralf Meisenzahl, Lubos Pastor, Diane Pierret, Andrea Polo, Andrea Presbitero, Veronica Rappoport, Brad Setser, Bo Sun, Eugene Tan, Lena Tonzer, Liliana Varela, Frank Warnock, and participants at numerous conferences and seminars for useful suggestions. They thank Stephanie Sezen, Diego Silva, and Kelsey Shipman for research assistance. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Ricardo Correa, Federal Reserve Board of Governors; Julian di Giovanni, Federal Reserve Bank of New York and CEPR; Linda S. Goldberg, Federal Reserve Bank of New York, NBER, and CEPR; or Camelia Minoiu, Federal Reserve Bank of Atlanta.
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