Bank of Italy paper examines within-firm estimation strategy

Credit interdependence means standard estimates of shocks’ effects are biased , authors find

Bank of Italy headquarters, Rome
The Bank of Italy

A working paper published by the Bank of Italy examines the methodology of the “within-firm” estimation strategy, 

Connecting the dots: the network nature of shocks propagation in credit markets by Stefano Pietrosanti and Edoardo Rainone note the tool’s importance. It has become crucial to estimating the effects of bank shocks on the credit available to firms, they say. 

The authors present a simplified model of a credit market where firms borrow from multiple banks. “In this environment

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