Abstract
The great recession starting in 2008 has destroyed jobs and firms at an unprecedented scale in the Western world and in particular in the EU-area. The question to many has been if the economic policy could have been more supportive for a quicker return to normal job creation and destruction. The monetary policy has in many countries been a major focus point and in some countries there has been a discussion between those who meant that the tightened credit policy is one of the reasons why firms have not grown and that firms have been more focused on increasing savings than on investing. Those who mean that demand for credit has gone down because of lack of demand from good projects have confronted this view. There has been little evidence to support the latter and only scattered newspaper and other types of coincidental evidence for the former. This paper attempts to present evidence from a study of firm behaviour that the credit constraint and perceived access to credit has had a significant effect on the real economy by contributing to the destruction of jobs. However, the paper also shows that lack of demand plays a role.
Though Denmark has been saved from direct negative effects of its own sovereign debt, Denmark has like many other countries suffered a huge job loss and has actually not done better than some of the highly indebted countries in the Euro area. Thus, the Danish evidence on firm level may be useful as a benchmark for firms in other countries.
We are using a survey with 2000 Danish firms merged with register information on economic key variables for each firm and find that the existence of financial problems for the firm means that the firm is less likely to create jobs and more likely to destroy jobs. Furthermore, we find a clear indication of an effect of having a “bad banker” who will not give credit despite good performance measured by the z-score that indicates how close the firm is to bankruptcy.
Though Denmark has been saved from direct negative effects of its own sovereign debt, Denmark has like many other countries suffered a huge job loss and has actually not done better than some of the highly indebted countries in the Euro area. Thus, the Danish evidence on firm level may be useful as a benchmark for firms in other countries.
We are using a survey with 2000 Danish firms merged with register information on economic key variables for each firm and find that the existence of financial problems for the firm means that the firm is less likely to create jobs and more likely to destroy jobs. Furthermore, we find a clear indication of an effect of having a “bad banker” who will not give credit despite good performance measured by the z-score that indicates how close the firm is to bankruptcy.
Original language | English |
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Publication date | 2016 |
Number of pages | 20 |
Publication status | Published - 2016 |
Event | 13 th EUROFRAME Conference on Economic Policy Issues in the European Union - Utrecht, Netherlands Duration: 10 Jun 2016 → 10 Jun 2016 Conference number: 13 http://www.euroframe.org/conferences.html?aid=1#june2016 |
Conference
Conference | 13 th EUROFRAME Conference on Economic Policy Issues in the European Union |
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Number | 13 |
Country/Territory | Netherlands |
City | Utrecht |
Period | 10/06/2016 → 10/06/2016 |
Internet address |
Keywords
- Job creation
- Financial problems
- Bank behaviour