Comments on Tang and Wus Trade Credit Bank Credit and Financial Crises: The Case of Taiwan Andrew K....
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Transcript of Comments on Tang and Wus Trade Credit Bank Credit and Financial Crises: The Case of Taiwan Andrew K....
Comments on Tang and Wu’sTrade Credit Bank Credit and
Financial Crises:The Case of Taiwan
Andrew K. RoseUC Berkeley, CEPR and NBER
Part of an Ongoing Debate
• Massive trade collapse in Great Recession– Severe, sudden, synchronized (sectors, countries)– Bigger collapse than GDP• Bigger than Great Depression (Eichengreen and
O’Rourke)
– Why?
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Potential Explanations
1. Demand for manufacturing goods collapsed– Especially durables• Alternatively inventories
2. Issues with supply chains– Perhaps a new normal?
3. (Artificial) Trade Frictions rose– Traditional Protectionism• Evenett, Global Trade Alert
– Alternatively: trade credit
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Work on Trade Creditand Great Recession
• Much Evidence finds role for credit constraints reducing trade– Manova: credit constraints affect exports– Amiti and Weinstein: Japanese exporters most
affected use banks most affected– Feenstra et al: more evidence on exports
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Still, Much Dispute
• Most find small role for trade credit in collapse
• Alternative explanations work better– Alessandra et al– Levchenko et al– Eaton et al
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Tang & Wu Contribute to Debate
• Innovations include:1. Better data (firm-level panel)2. Compare trade and bank credit• Substitutes or Complements?• A: Varies with recession
– Complements in 2001; substitutes in 2008-09
3. Compare recessions• 2001 dot-com vs. 2008-09 Great Recession
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Lots of Strengths
• Great Motivation• Terrific Literature Review• Careful data work
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Things I would do differently
1. Worry about Timing2. Add Crisis3. More Sensitivity Analysis4. Miscellaneous Gripes
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1: Timing Issues
• Choice of 2008Q4 (not 2008Q3) seems critical, arbitrary, unwarranted
• When did the recession begin?
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Taiwan Recession Began 2008Q3
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Bumps in 2008Q4(Little variation otherwise and …
big excess supply of trade credit throughout)
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Need to Choose Dates Carefully?
• Do we Have to Choose Crisis Dates at all?• Instead: add comprehensive set of time
effects, focus on those coefficients
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2: Add Asian Financial Crisis
• 2001, 2008—09 recessions relevant for Taiwan
• But Asian financial crisis of 1997-98?– (Taiwan mildly affected)– Sample of firms here starts in 1995!– Can add third (regional) crisis at cost of some
firms
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3: Sensitivity Analysis
• If stick with current methodology, show insensitivity with respect to exact dates
• Alternative: use event-study on crises
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4: Miscellaneous Gripes
1. Simultaneity: aren’t bank credit and trade credit potentially driven by same phenomena?
2. How important are these firms in Taiwanese manufacturing? GDP?
3. Selection bias important? Only firms listed throughout; no entry/exit
4. Interpolation makes me nervous; so does removing extreme values (especially in crisis!)
5. Way too many digits/coefficients in tables
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Generalizability
• Key Finding: 2001 and Great Recessions differ– Completely Plausible– But what about Future Recessions?– Idiosyncrasies reduce policy implications
• Is Taiwan special/unusual?
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