Europe’s ‘zombie lending’ harmed recovery – BoE paper

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“Zombie lending” in the eurozone in the wake of the 2010 sovereign debt crisis hampered the bloc’s ability to recover, according to research published by the Bank of England.

Belinda Tracey’s staff working paper, The real effects of zombie lending in Europe, models how endogenous forbearance by lenders affects aggregate outcomes and firm dynamics, simulating a counterfactual where no forbearance is permitted.

Tracey notes forbearance in theory has both pros and cons. On the one hand, it may

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