NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Misfortune of Nonfinancial Firms in a Financial Crisis: Disentangling Finance and Demand Shocks

Hui Tong, Shang-Jin Wei

Chapter in NBER book Measuring Wealth and Financial Intermediation and Their Links to the Real Economy (2015), Charles R. Hulten and Marshall B. Reinsdorf, editors (p. 349 - 376)
Conference held November 12-13, 2010
Published in January 2015 by University of Chicago Press
© 2015 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

If a non-financial firm does not do well in a financial crisis, it could be due to either a contraction of demand for its output or a contraction of supply of external finance. We propose a framework to assess the relative importance of the two shocks, and apply it to the 2007-2008 crisis. We find robust evidence suggesting that both channels are at work, but that a finance shock is economically more important in understanding the plight of non-financial firms.

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This paper was revised on July 27, 2016

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Document Object Identifier (DOI): 10.7208/chicago/9780226204437.003.0011

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