Fiscal Policy and Lending Relationships

Author/Editor: Giovanni Melina ; Stefania Villa
Publication Date: June 05, 2013
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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.
Series: Working Paper No. 13/141
Subject(s): Fiscal policy | United States | Banking sector | Loans | Economic models

Publication Date: June 05, 2013
ISBN/ISSN: 9781484380277/1018-5941 Format: Paper
Stock No: WPIEA2013141 Pages: 48
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