IMF Working Papers

Firm Financing During Sudden Stops: Can Governments Substitute Markets?

By Miguel Acosta-Henao, Andrés Fernández, Patricia Gomez-Gonzalez, Sebnem Kalemli-Ozcan

April 11, 2025

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Miguel Acosta-Henao, Andrés Fernández, Patricia Gomez-Gonzalez, and Sebnem Kalemli-Ozcan. "Firm Financing During Sudden Stops: Can Governments Substitute Markets?", IMF Working Papers 2025, 072 (2025), accessed April 18, 2025, https://doi.org/10.5089/9798229005128.001

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Disclaimer: 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.

Summary

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.

Subject: Collateral, Credit, Domestic credit, Domestic debt, External debt, Financial institutions, Financial services, Interest rate parity, Loans, Money, Public debt

Keywords: Capital flows, Collateral, Credit, Domestic credit, Domestic debt, Firm financing, Foreign currency, Interest rate parity, Loans, Unconventional policies

Publication Details

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