Zombie firms and low inflation in Europe
Acharya and al. use granular inflation and firm level data for a sample of 1.1 million firms from 11 European countries across 65 industries and find that cheap credit to zombie firms has a disinflationary effect because:
- As default of zombie firms decreases;
- Production capacity increases putting downward pressure on markups and product prices.
Their results results are stronger for prices of non-tradable products, which are more affected by local credit markets.
Zombie Credit and (Dis-)Inflation: Evidence from Europe
Authors: Viral V. Acharya, Matteo Crosignani, Tim Eisert, Christian Eufinger
From: NYU Stern, Michigan Ross, Erasmus Rotterdam, IESE
