Fiscal Policy and Lending Relationships
June 5, 2013
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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
Pages:
48
Volume:
2013
DOI:
Issue:
141
Series:
Working Paper No. 2013/141
Stock No:
WPIEA2013141
ISBN:
9781484380277
ISSN:
1018-5941
