Arbeitspapier

Banks, Credit Reallocation, and Creative Destruction

How do banks facilitate creative destruction and shape firm turnover? We develop a dynamic general equilibrium model of bank credit reallocation with endogenous firm entry and exit that allows for both theoretical and quantitative analysis. By restructuring loans to firms with poor prospects and high default risk, banks not only accelerate the exit of unproductive firms but also redirect existing credit to more productive entrants. This reduces banks' dependence on household deposits that are often supplied inelastically, thereby relaxing the economy's resource constraint. A more efficient loan restructuring process thus fosters firm creation and improves aggregate productivity. It also complements policies that stimulate firm entry (e.g., R&D subsidies) and renders them more effective by avoiding a crowding-out via a higher interest rate.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 10093

Classification
Wirtschaft
Macroeconomics: Production
Financial Markets and the Macroeconomy
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Economic Growth and Aggregate Productivity: General
Subject
creative destruction
reallocation
bank credit
productivity

Event
Geistige Schöpfung
(who)
Keuschnigg, Christian
Kogler, Michael
Matt, Johannes
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2022

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Keuschnigg, Christian
  • Kogler, Michael
  • Matt, Johannes
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2022

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