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The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis

Nittai K. Bergman, Rajkamal Iyer, Richard T. Thakor

NBER Working Paper No. 23546
Issued in June 2017
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics, Labor Studies, Monetary Economics

What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.

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Document Object Identifier (DOI): 10.3386/w23546

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