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American Economic Review: Vol. 98 No. 4 (September 2008)
AER Volume. 98, Issue 4 | 
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AER Forthcoming Articles
Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market
Article Citation
Khwaja, Asim Ijaz, and
Atif Mian. 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market."
American Economic Review,
98(4): 1413-42.
DOI: 10.1257/aer.98.4.1413
DOI: 10.1257/aer.98.4.1413
Abstract
We examine the impact of liquidity shocks by exploiting cross-bank liquidity
variation induced by unanticipated nuclear tests in Pakistan. We show that
for the same firm borrowing from two different banks, its loan from the bank
experiencing a 1 percent larger decline in liquidity drops by an additional
0.6 percent. While banks pass their liquidity shocks on to firms, large firms—
particularly those with strong business or political ties—completely compensate
this loss by additional borrowing through the credit market. Small firms
are unable to do so and face large drops in overall borrowing and increased
financial distress. (JEL E44, G21, G32, L25)
Article Full-Text Access
Full-text Article
Additional Materials
Data Availability (33.71 KB) | Link to Appendix (242.64 KB)
Authors
Khwaja, Asim Ijaz (Harvard U)
Mian, Atif (U Chicago)
Mian, Atif (U Chicago)
JEL Classifications
E44: Financial Markets and the Macroeconomy
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
L25: Firm Performance: Size, Diversification, and Scope
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
L25: Firm Performance: Size, Diversification, and Scope
