Fiscal Policy and Lending Relationships

June 5, 2013

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Format: Chicago

Giovanni Melina, and Stefania Villa. Fiscal Policy and Lending Relationships, (USA: International Monetary Fund, 2013) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies how fiscal policy affects loan market conditions in the US. First, it conducts a Structural Vector-Autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results are mimicked by a Dynamic Stochastic General Equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock.

Subject: Banking, Consumption, Expenditure, Financial institutions, Government consumption, Loans, National accounts, Private consumption

Keywords: Boosting lending, Consumption, Consumption crowding in, Deep habits, Fiscal policy, Global, Government consumption, Government consumption expenditure, Government spending, Government spending expansion, Government spending shock, Lending relationship, Lending relationships, Loans, Market condition, Private consumption, Relationship duration, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/141
Stock No:

WPIEA2013141
ISBN:

9781484380277
ISSN:

1018-5941

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