Zombie Credit and (Dis‐)Inflation: Evidence from Europe.

Item request has been placed! ×
Item request cannot be made. ×
loading   Processing Request
  • Additional Information
    • Subject Terms:
    • Abstract:
      We show that "zombie credit"—subsidized credit to nonviable firms—has a disinflationary effect. By keeping these firms afloat, zombie credit creates excess aggregate supply, thereby putting downward pressure on prices. Granular European data on inflation, firms, and banks confirm this mechanism. Markets affected by a rise in zombie credit experience lower firm entry and exit, capacity utilization, markups, and inflation, as well as a misallocation of capital and labor, which results in lower productivity, investment, and value added. If weakly capitalized banks were recapitalized in 2009, inflation in Europe would have been up to 0.21 percentage points higher post‐2012. [ABSTRACT FROM AUTHOR]
    • Abstract:
      Copyright of Journal of Finance (John Wiley & Sons, Inc.) is the property of John Wiley & Sons, Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)