Marco Rojas, Banco Central de Chile

Paper: Credit Supply and Firm Pricing: Evidence from Match Bank-Firm Product Data

Abstract: This paper estimates the effects of credit supply shocks on firm pricing and real outcomes. We combine firm-bank credit data with firm-product-level data to control for demand factors in the estimation: we compare changes in sales, quantities, and prices of the same product across firms borrowing from different banks, exposed to varying credit supply shocks. Firms connected to banks expanding their credit supply receive more credit, at lower interest rates and longer maturities. These firms subsequently respond by decreasing prices and increasing sales and quantities. Also, these firms increase investment and employment. These effects persist over several quarters. The findings are consistent with firms responding to improved credit access by expanding productive capacity and adjusting their pricing to attract customers.