{"title":"Increasing Business Uncertainty and Credit Conditions in Times of Low and High Uncertainty: Evidence from Firm-Level Survey Data","authors":"C. Grimme, Steffen R. Henzel","doi":"10.2139/ssrn.3754682","DOIUrl":null,"url":null,"abstract":"We demonstrate that the impact of increases in uncertainty on bank credit conditions depends on the level of uncertainty. Using firm-level survey data, we document that a surge in business-specific uncertainty is particularly damaging when this uncertainty is low: low levels nearly triple the effect compared to high levels. The result is robust to controlling for recessionary periods. To provide an interpretation, we build and calibrate a stylized model in which bank lending is governed by expectations about the future level of business uncertainty. Increases in uncertainty serve as a signal to update these expectations. The model predicts that expectations are revised more strongly and, thus, lending drops more under low uncertainty.","PeriodicalId":179699,"journal":{"name":"CESifo: Monetary Policy & International Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"CESifo: Monetary Policy & International Finance (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3754682","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 1
Abstract
We demonstrate that the impact of increases in uncertainty on bank credit conditions depends on the level of uncertainty. Using firm-level survey data, we document that a surge in business-specific uncertainty is particularly damaging when this uncertainty is low: low levels nearly triple the effect compared to high levels. The result is robust to controlling for recessionary periods. To provide an interpretation, we build and calibrate a stylized model in which bank lending is governed by expectations about the future level of business uncertainty. Increases in uncertainty serve as a signal to update these expectations. The model predicts that expectations are revised more strongly and, thus, lending drops more under low uncertainty.