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Firm Financing During Sudden Stops: Can Governments Substitute Markets?
Author:
Miguel Acosta-Henao
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Andrés Fernández https://isni.org/isni/0000000404811396 International Monetary Fund

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Patricia Gomez-Gonzalez
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Sebnem Kalemli-Ozcan https://isni.org/isni/0000000404811396 International Monetary Fund

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Series:
IMF Working Papers
Volume/Issue:
Volume 2025: Issue 072
Language:
English
Publication Date:
11 Apr 2025
DOI:
https://doi.org/10.5089/9798229005128.001
ISBN:
9798229005128
ISSN:
1018-5941
Pages:
72
Keywords:
Capital flows; firm financing; unconventional policies; foreign currency; governments substitute market; open economy model; finance mix; FOGAPE-COVID credit; i. firm; Credit; Domestic credit; Domestic debt; Loans; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We analyze whether central bank credit lines and government-backed guarantees helped mitigate the impact of the pandemic's sudden stop, marked by the abrupt withdrawal of international capital, using administrative data on the universe of Chilean firms. Our regression discontinuity design reveals that eligible firms increased domestic borrowing at lower costs. These policies reduced the cost of domestic debt compared to foreign debt, easing access to capital. An open economy model explains the complementarity of both interventions--credit lines and guarantees--in relaxing collateral constraints, reducing financial intermediaries' risk aversion and boosting domestic credit supply amidst shrinking international flows.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund