TY  - BOOK
AU  - Acharya,Viral V.
AU  - Lenzu,Simone
AU  - Wang,Olivier
ED  - National Bureau of Economic Research.
TI  - Zombie Lending and Policy Traps
T2  - NBER working paper series
PY  - 2021///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
KW  - Financial Markets and the Macroeconomy
KW  - jelc
KW  - Monetary Policy
KW  - Financial Crises
KW  - Banks • Depository Institutions • Micro Finance Institutions • Mortgages
KW  - Government Policy and Regulation
KW  - Bankruptcy • Liquidation
N1  - December 2021; Hardcopy version available to institutional subscribers
N2  - We build a model with heterogeneous firms and banks to analyze how policy affects credit allocation and long-term economic outcomes. When firms are hit by small negative shocks, conventional monetary policy can restore efficient bank lending and production by lowering interest rates. Large shocks, however, necessitate unconventional policy such as regulatory forbearance towards banks to stabilize the economy. Aggressive accommodation runs the risk of introducing zombie lending and a "diabolical sorting", whereby low-capitalization banks extend new credit or evergreen existing loans to low-productivity firms. If shocks reduce the profitability gap between healthy and zombie firms, the optimal forbearance policy is non-monotone in the size of the shock. In a dynamic setting, policy aimed at avoiding short-term recessions can be trapped into protracted low rates and excessive forbearance, due to congestion externalities imposed by zombie lending on healthier firms. The resulting economic sclerosis delays the recovery from transitory shocks, and can even lead to permanent output losses
UR  - https://www.nber.org/papers/w29606
UR  - http://dx.doi.org/10.3386/w29606
ER  -