Did Bank Lending Stifle Innovation in Europe During the Great Recession?

Abstract

Using the 2008-09 Global financial crisis and the 2012 Euro area sovereign debt crisis as natural experiments, we investigate the effects of contractions in credit supply on R&D spending in a large sample of European firms. Our identification strategy exploits differences in financial constraints across firms, as well as the cross-industry variation in dependence on external finance, to identify a causal effect of bank credit supply on firm investment in innovation. We show that firms that are more likely financially constrained, in industries more dependent on external finance, have a disproportionally lower growth rate of R&D spending, as well as lower R&D intensity and share of R&D investment in total investment during periods of tight credit supply. These results are robust to different proxies of financial constraints, model specifications and fixed-effects identification strategies.

Political voice on monetary policy: Evidence from the parliamentary hearings of the European Central Bank

“…mal channels through which politics exerts influence on monetary policy despite the de jure statutory arrangements in place to safeguard central bank independence. This is especially the case at a time when independence looks particularly vulnerable because of populist politics, rising public debt, and dwindling public support for central banks, at least in advanced economies (Goodhart and Lastra, 2018;Rodrik, 2018;Jones and Matthijs, 2019;Masciandaro, 2019;Peia and Romelli, 2019). In fact, it has been argued that the rise of populism is likely to be negatively correlated with the consensus in favor of central bank independence (see Buiter, 2014;de Haan and Eijffinger, 2017;Agur, 2018;Goodhart and Lastra, 2018;Masciandaro and Passarelli, 2019, among others).…”