Raoul Minetti

Michigan State University | MSU · Department of Economics

We investigate the effects of financial liberalization on the dynamism of the credit market. We measure interfirm credit reallocation in the U.S. states following a methodology akin to Davis and Haltiwanger (1992). We then exploit the staggered liberalization of the credit markets of the U.S. states to identify an exogenous shock to the credit real...

We examine the effect of bank information on the growth of borrowing firms by using matched bank-firm data from the US credit market. Exploiting the structure of lending syndicates to construct proxies for banks’ information acquisition, we find consistent evidence that bank monitoring spurs firms’ investments in tangible and intangible assets, pro...

Background: Countries making up the Nordic region - Denmark, Finland, Iceland, Norway, and Sweden - have minimal socioeconomic, cultural, and geographical differences between them, allowing for a fair comparative analysis of the health policy and economy trade-off in their national approaches towards mitigating the impact of the COVID-19 pandemic....

The quality of bank lending is increasingly viewed as a force driving the buildup and unfolding of crises. In a dynamic general equilibrium model, we show that banks’ access to liquidity and the values of loan portfolios govern banks’ incentives and effectiveness in producing information on loans. Consistent with granular loan-level evidence from U...

In this paper, we study optimal fiscal rules in a two‐country economy in which cross‐country linkages between sovereign debts and banking sectors motivate bail‐outs among countries. The first‐best sovereign borrowing, which is contingent on the output gap between the countries, cannot be achieved in the presence of asymmetric information on a count...

This paper investigates whether foreign banks help mitigate the effects of domestic liquidity shocks by exploiting a policy-induced shock to the U.S. wholesale market for liquidity and matched bank-syndicated loan data. We find that, following the 2011 Federal Deposit Insurance Corporation (FDIC) regulatory change to the cost of wholesale liquidity...

This paper studies the impact of geographic banking restrictions on monetary policy transmission. Exploiting the staggered state-level deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate deregulation sharply increased the responsiveness of bank lending to monetary shocks, nearly doubling it. The effect occur...

In response to severe fiscal consolidation policies implemented after the Great Recession and the euro area sovereign debt crisis, many have questioned the effectiveness of fiscal consolidations in reducing the burden of public debt. This paper revisits this fundamental policy debate qualitatively and quantitatively, studying conditions under which...

We study the aggregate effects of credit relationships in an economy where lenders provide liquidity and expertise to firms in distress. Lenders' effort in the restructuring of firms' investments endogenously depends on their financial involvement in investments. Firms trade off the benefits of precautionary internal liquidity with the need to ince...

This paper studies the impact of financial structures and regulations on export dynamics using data from a large panel of countries over the 1997-2014 period. The results suggest that bank-oriented financial systems can boost the number of exporters more than market-oriented systems. However, especially in lower income countries with lax bank regul...

This paper studies the role of different types of credit institutions in income inequality. By analyzing Italian local (provincial) credit markets over the 2001–2011 period, we find that cooperative banks mitigate income inequality in local communities more than their commercial counterparts. The results also suggest that it is the specific nature...

How does the expansion of multinational banks influence the business cycle of host countries? We study an economy where multinational banks can transfer liquidity across borders through internal capital markets but are hindered in their allocation of liquidity by limited knowledge of local firms’ assets. We find that, following domestic banking sho...

Using a rich sample of small and medium-sized European manufacturers, we investigate the nexus between banks’ relationship lending technologies and firms’ export activities during the 2009 great trade collapse. We find that the contraction of firms’ export was milder when banks had access to up-to-date “soft” information on firms’ export prospects....

This paper studies the effect of social interactions on house price dynamics in China. We first present household-level evidence on Chinese households’ tendency to keep up with the home ownership status of their communities (“keep up with the Zhangs”). By means of a dynamic stochastic general equilibrium model, we then study the impact of these hou...

The re-regulation wave following the global financial crisis is putting pressure on local community and cooperative banks. In this paper, we show that cooperative banking can play a pivotal role in reducing income inequalities in local communities. By analyzing Italian local (provincial) credit markets over the 2001-2011 period, we find that cooper...

Using a unique sample of small and medium-sized Italian firms, we investigate the effect of financial constraints on firms' participation in domestic and international supply chains. We find that firms more exposed to bank credit rationing and with weaker relationships with banks are more likely to participate in supply chains to overcome liquidity...

We investigate the effects of a credit crunch in an economy where firms can retain a mature technology or adopt a new technology. We show that firms' collateral eases firms' access to credit and investment but can also inhibit firms' innovation. When this occurs, a contraction in the price of collateral assets squeezes collateral-poor firms out of...

Using rich, unique data from the Italian local credit markets (provinces), this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link. Exploiting the Italian historical banking regulation to instrument for the local presence of bank branches, we find that local banki...

This paper studies how the process of reallocation of credit across firms behaves before and after financial crises. Applying the methodology typically used for measuring job reallocation, we track credit reallocation across Korean firms for over three decades (1980–2012). The credit boom preceding the 1997 crisis featured a slowdown of credit real...

The Kiyotaki and Wright model has exerted a considerable influence on the monetary search literature. We argue that the model also delivers important insights into a broader range of macroeconomic and development issues. The analysis studies how market frictions and the liquidity of assets affect the distribution of income. Experiments illustrate h...

This paper introduces corporate governance frictions into a growth model with endogenous market structure. Managers engage in corporate resource diversion and empire building. Shareholders discipline managers with incentive compensation contracts. A reform that mitigates corporate governance frictions boosts firms’ entry and, for a given market str...

Using a rich sample of small and medium-sized European firms, we study how banks' lending technologies affected firms' export activities during the 2009 great trade collapse. We find that bank-firm relationships mitigated the contraction of firms' export by easing banks' access to inside, "soft" information on export prospects. However, relationshi...

Interbank markets have been at the core of the international transmission of recent financial crises, including the euro area sovereign debt crisis. This paper studies the transmission of shocks in a two-country DSGE model where government bonds are used as collateral in interbank markets. We isolate an "interbank collateral channel" of transmissio...

Using a new Keynesian DSGE model with credit constraints, we study the impact on macroeconomic volatility of a macroprudential credit policy of the type implemented by the Central Bank of China. We find that the countercyclical credit policy plays a non-negligible role in stabilizing the real economy, and that this effect is distinctly more pronoun...

This paper tests the impact of fi…rms' ownership structure on …firms’' innovation decisions using data on 20,000 Italian manufacturers. After accounting for its possible endogeneity, we …find that ownership concentration negatively affects innovation, especially by reducing R&D effort. The analysis reveals that con‡flicts of interest between large...

This paper tests the impact of family ownership on firms' export decisions using a data set of 20,000 Italian manufacturers. We find that family ownership increases the probability that firms export, although the effect weakens as own-ership concentration rises. The benefit of family owners is especially pronounced when they retain control rights (...

In emerging economies, institutional and regulatory constraints can distort loan contracting and, hence, the incentives of lenders and borrowers. Studying the South Korean syndicated loan market, we find that during the 90s the safety net protecting business groups (chaebols)—especially the government’s bailout policy—affected the structure and pri...

We study the impact of corporate governance frictions in an economy where growth is driven both by the foundation of new firms and by the in-house investment of incumbent firms. Firms' managers engage in tunneling and empire building activities. Active shareholders monitor managers, but can shirk on their monitoring, to the detriment of minority (p...

This paper studies how international real interest rate shocks can drive business cycles in an emerging economy. We first present evidence that, in emerging economies, real interest rates and real estate prices are negatively correlated and real interest rates are countercyclical. Motivated by this evidence, we develop a model of a small open econo...

The paper reviews the state of the economic literature on the link between financial development and growth. We first examine the issue of measurement of financial development and the debate on the direction of causality between finance and growth. Next, we extensively discuss the various channels through which the financial sector can affect growt...

In emerging countries, credit market liberalization is often motivated with the financial deepening generated by the entry of foreign financial institutions. However, there is a risk that liberalization may benefit internationally active, export‐oriented businesses at the expense of domestically oriented ones. This paper models a two‐sector economy...

This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy,...

Lagos and Wright (2005) introduced an influential model of monetary exchange in which trade alternates between centralized and decentralized markets and money is essential. A limitation of their model and of the literature that follows is that they do not provide a microfoundation for the process of exchange in the centralized market. In this paper...

This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy,...

Mutual aid often entails the sharing of knowledge. We investigate how, in turn, knowledge sharing affects the long-run dynamics of mutual aid. In our economy, agents with specific knowledge are "held up" by their principals. Inside communities, agents aid each other by sharing their specific knowledge. We show that, by generating a new type of shar...

We inquire into the existence of a process of inter-firm credit reallocation. Employing the methodology developed by Davis and Haltiwanger (1992) for the measurement of job reallocation, we find that at any phase of the business cycle a significant amount of credit flows across U.S. firms. Credit reallocation well exceeds net credit changes and is...

We compare allocations sustained by credit with allocations sustained by bank notes (inside money) in a search model with decentralized trade and limited monitoring. We demonstrate that there exists a credit arrangement that is superior to inside money. However, in contrast with inside money, this arrangement is not robust to an expansion of trade...

This paper estimates the impact of credit rationing on firms' export. We use detailed survey data from Italian manufacturing firms that provide a firm-specific measure of credit rationing based directly on firms' responses to the survey rather than indirectly on firms' financial statements. After controlling for productivity and other relevant firm...

We investigate the effects of a credit crunch in an economy where firms can operate a mature technology or restructure their activity and adopt a new technology. We show that firms' collateral and credit relationships ease firms' access to credit and investment but can also inhibit firms' restructuring. When this occurs, negative collateral or prod...

This paper tests the impact of firms' ownership structure on firms' innovation decisions using a rich dataset of roughly 20,000 Italian manufacturers. We find that ownership con-centration negatively affects the probability of innovation, especially by reducing firms' R&D effort. The results also suggest that risk aversion induced by lack of financ...

This paper tests the impact of firms’ ownership structure on firms’ innovation decisions using a rich dataset of about 20,000 Italian manufacturers. After accounting for the endogeneity of the ownership structure, we find that ownership concentration negatively affects the probability of innovation, especially by reducing firms’ R&D effort. The res...

This paper studies an economy in which firms can operate either a mature or a new technology and lenders acquire information on the productive assets of the borrowing firms that are eligible as collateral. We demonstrate that when contracts are imperfectly enforceable informed lenders offer inexpensive funding for the mature technology but may choo...

It is generally agreed that within long-term relationships agents learn the characteristics of their market partners better than through spot transactions. In contrast, little is known on how relationship-based and transaction-based markets compare when agents learn about the aggregate economy from market exchanges. In this paper, we study the mark...

A major concern in modern monetary theory has been the development of models where money is essential and yet substantive issues can be analyzed in a tractable manner. At the center of this e¤ort is the framework proposed by Lagos and Wright (2005), whose tractability depends on the fact that trade alternates between centralized and decentralized m...

In recent decades, after liberalizing their credit markets emerging economies have fre-quently experienced sustained output growth but also large volatility of output and asset (e.g., real estate) prices. This paper studies an economy where firms face credit constraints tied to the pledgeable returns -output and collateralizable assets -of their in...

In emerging countries, credit market liberalization is often motivated with the financial deepening generated by the entry of foreign financial institutions. However, a gloomier view warns that credit market liberalization can benefit internationally active, export-oriented businesses at the expense of domestic-oriented ones. This paper aims at rec...

We study the impact of lenders' information sharing on credit market performance using contract-level data from a major U.S. credit bureau that serves the equipment finance industry. The staggered entry of lenders into the bureau, the richness of the data set (28,000 loans and leases extended to roughly 4,000 businesses), and the small and medium s...

This paper tests a credit channel of monetary policy (especially a bank-lending channel) in the housing market. We argue that the relevance of the credit channel depends on the structural features of the housing finance system, in particular efficiency and institutional organisation. We employ a VAR approach to analyse this issue in four housing ma...

We construct an economy where a two way interaction between bank capital and project quality propagates negative shocks to technology or regulation. By shrinking the available liquidity and the scale of their activity, a contraction in bank loans discourages entrepreneurs from sustaining the set-up effort of high quality projects, inducing them to...

"We investigate the long-run dynamic interaction between fashion (brand loyalty) and industry structure. We analyze how this interaction affects the importance of fashion in the market for a product in the different stages of its life and characterize conditions under which fashion loses or preserves its relevance over time. The model can explain w...

This article proposes a theory of financial intermediation based on intermediaries' role in the reallocation of assets of distressed firms. The article suggests that intermediaries aggregate information on firms in credit relationships and use this information to facilitate asset reallocation across firms. However, this role of intermediaries hinge...

When firms borrow from multiple concentrated creditors such as banks they appear to differentiate their allocation of borrowing. In this paper, we put forward hypotheses for this borrowing pattern based on incomplete contract theories and test them using a sample of small U.S. firms. We find that firms with more valuable and more homogeneous assets...

We investigate the role of the credit market in an economy where firms can implement a mature technology or restructure their activity and adopt a new technology. We show that firms' collateral and credit relationships ease firms' access to credit and investment but can also inhibit firms' restructuring. When this occurs, a negative collateral shoc...

We develop a theory of the interaction between the entry of lenders and the real sector. The high liquidation skills of incumbent lenders render them too tough in terminating high-risk/return projects. Being "foreign" to the market, newcomers have lower ability to liquidate than incumbents. This makes them softer in liquidating high-risk/return pro...

We study an economy where firms face credit constraints tied to the value of their assets and financiers differ in their information on the market for firms' assets. Financiers with poor information on the asset market make mistakes in asset liquidation, hoarding assets during booms and trading them during recessions. We find that asset liquidity a...

Are relationship banking and market finance complements or substitutes? Some authors, stressing the incentive for firms to escape bank rent seeking, show that bank relationships weaken after companies IPO. On the contrary, another strand of literature suggests complementarity, as bank relationships bring positive news to financial markets. We study...

We examine the international transmission of business cycles in a two-country model where credit contracts are imperfectly enforceable. In our economy, foreign lenders differ from domestic lenders in their ability to recover value from borrowers’ assets and, therefore, to protect themselves against contractual non-enforceability. The relative impor...

This paper formalizes a theory of the obsolescence and decline of social capital based on the interplay between social capital and the flexibility of productive resources. In our economy, agents with specific skills are held up by their principals. Inside communities, agents learn about each other and thereby engage in mutual aid, preventing the ho...

This paper empirically investigates the effect of “informed finance” on technological change. The theoretical literature offers conflicting predictions on whether the information of financiers fosters or inhibits firms’ innovation. Using data from a sample of Italian manufacturing firms, we find that the information of firms’ main banks, proxied by...

We analyse how a firm allocates information rights across its multiple banks. By differentiating information disclosed, a firm prevents its banks from continuing projects (possibly unsound) solely in order to use their superior information and seize assets during the reorganization. Informational diversity can also lead to the premature liquidation...

We examine the international transmission of business cycles in a two-country economy in which credit contracts are imperfectly enforceable. In our economy, foreign lenders differ from domestic lenders in their ability to recover value from borrowers' assets and, therefore, to protect themselves against contractual non-enforceability. The relative...

We analyse the impact of financial liberalization on the link between monetary policy and house prices. We present a simple model of a small open economy subjectto credit constraints. The model shows that the higher the degree of financial liberalizationis, the stronger is the impact of interest rate shocks on house prices. We then usevector autore...

We propose a theory of financial intermediaries as internal markets for corporate assets. By aggregating the information on firms gathered in credit relationships, financial intermediaries achieve a better reallocation of assets of distressed firms. However, the role of intermediaries as internal markets relies on debt contracts which impoverish th...

We analyse the impact of financial liberalisation on the link between monetary policy and house prices. We present a simple model of a small open economy subject to credit constraints. The model shows that the higher the degree of financial liberalisation, the stronger is the impact of interest rate shocks on house prices. We then use vector autore...

This paper tests for the presence of a credit channel (particularly a bank-lending sub-channel) for monetary policy in the housing market. We argue that the importance of this channel for investment in residential housing is highly dependent on the structural features, and particularly the efficiency and institutional organization, of housing finan...

We consider an economy where stakeholders' information determines their ability to grab re-sources during corporate reorganizations. By borrowing from both relationship and transactional banks (diversified bank funding), firms prevent banks from continuing bad projects only to grab resources. Having less information than relationship banks, transac...

Emerging economies frequently experience crises a few years after financial liberalization. We propose an explanation based on the skill gap between foreign and domestic creditors. In our economy, foreign creditors possess better skills than local, inefficient creditors at extracting value from entrepreneurs' collateral assets. Yet, their skill gap...

We investigate the interaction between the credit market and cities in an economy where cities ease the exchange of information on col-lateralized assets. We find that this interaction can help to explain the existence of long cycles in the development of urban industries.. Address: 101 Marshall Hall, East Lansing, MI 48824-1038, USA. For helpful c...

We study an economy where a monetary search market for an investment good and a labor search market interact. We show that such an economy is vulnerable to an under-investment inefficiency. The inefficiency stems from the non-observability of firm investment which is the very friction rendering money a valuable medium of exchange. The inefficiency...

We show that in an economy with limited contract enforceability informed finance can be an obstacle to technological progress. Informed lenders can offer inexpensive financing for mature technologies but do not finance new technologies to preserve the value of their information on mature ones. When choosing between informed and uninformed finance,...

We examine the interaction between the credit system and cities and how their interplay determines technological progress. In cities information on the use of productive assets flows and is reproduced more easily than in countryside. The credit system determines the number of merchants who go to cities to resell assets displaced from credit relatio...

This paper puts forward a theory for the origin of banks based on their ability to record and disseminate information when trade is decentralized and information on transactions is scarce. We first show that when trade is limited cooperation in exchange can be sus-tained by institutions where transactions are publicly observable. We interpret these...

Using a unique firm-level survey dataset collected by one of the authors, this pa-per addresses two questions central to the literature on technology diffusion: What factors influence technology adoption, and how well do firms absorb newly acquired technology? We find that given the same technical capacity, firms with better ac-cess to cheap bank c...