Discussion Paper Details

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Title: Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis

Author(s): Pierre-Olivier Gourinchas, Sebnem Kalemli-÷zcan, Veronika Penciakova and Nick Sander

Publication Date: May 2021

Keyword(s): bankruptcy, business failure, COVID-19 and SMEs

Programme Area(s): International Macroeconomics and Finance

Abstract: We develop a flexible framework for tracking business failures during economic downturns. Our framework combines firm-level data with a model of cost-minimization where firms react to a rich set of shocks and fail if illiquid. After verifying that our methodology approximates past official failure rates, we apply it to the COVID-19 crisis in 11 countries. Absent government support, SME failures would have increased by 6.15 percentage points, representing 3.15 percent of employment. We find little threat to financial stability. Commonly implemented COVID-19 policies saved firms but were costly because funds were directed to firms that could survive without support.

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Bibliographic Reference

Gourinchas, P, Kalemli-÷zcan, S, Penciakova, V and Sander, N. 2021. 'Estimating SME Failures in Real Time: An Application to the COVID-19 Crisis'. London, Centre for Economic Policy Research.