NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Misfortune of Non-financial Firms in a Financial Crisis: Disentangling Finance and Demand Shocks

Hui Tong, Shang-Jin Wei


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, Charles Hulten and Marshall Reinsdorf, editors
Conference held November 12-13, 2010
Forthcoming from University of Chicago Press
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 April 17, 2014

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