‘Can corporate credit market interventions unlock recovery?’ Evidence from Japan by Dr Isabelle Roland (Bank of England)
Vinson Centre Seminar Series in the Classical Political Economy Tradition
Credit interventions have become a widespread policy tool. Among them is Japan’s 2009 SME Financing Facilitation Act, which encouraged banks to offer loan forbearance to troubled SMEs. Such practices are generally believed to keep unviable firms alive.
This talk develops a framework to quantify the aggregate impact of the policy using a difference-in-differences approach combined with back-of-the-envelope counterfactual exercises. Our evaluation indicates that, when coupled with business restructuring plans, forbearance lending can temporarily boost output without contributing to the widespread zombification of the corporate sector. Forbearance is more effective when credit market disruptions impede the reallocation of capital.