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Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures

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  • Robert Kollmann
  • Werner Roeger
  • Jan in't Veld

Abstract

A key dimension of fiscal policy during the financial crisis was massive government support for the banking system. The macroeconomic effects of that support have, so far, received little attention in the literature. This paper fills this gap, using a quantitative dynamic model with a banking sector. Our results suggest that state aid for banks may have a strong positive effect on real activity. Bank state aid multipliers are in the same range as conventional fiscal spending multipliers. Support for banks has a positive effect on investment, while a rise in government purchases crowds out investment.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.77
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Pages: 77-81

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:77-81

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  1. In't Veld, Jan & Raciborski, Rafal & Ratto, Marco & Roeger, Werner, 2011. "The recent boom-bust cycle: The relative contribution of capital flows, credit supply and asset bubbles," European Economic Review, Elsevier, vol. 55(3), pages 386-406, April.
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Cited by:
  1. In''t Veld, Jan & Kollmann, Robert & Ratto, Marco & Roeger, Werner, 2012. "Fiscal Policy, Banks and the Financial Crisis," CEPR Discussion Papers 9175, C.E.P.R. Discussion Papers.
  2. Giancarlo Corsetti & Keith Kuester & André Meier & Gernot J. Mueller, 2013. "Sovereign Risk and Belief-Driven Fluctuations in the Euro Area," IMF Working Papers 13/227, International Monetary Fund.
  3. Robert Kollmann, 2013. "Global Banks, Financial Shocks And International Business Cycles: Evidence From An Estimated Model," CAMA Working Papers 2013-30, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Nicolaas Groenewold, 2012. "Australia and the GFC: Saved by Astute Fiscal Policy?," Economics Discussion / Working Papers 12-28, The University of Western Australia, Department of Economics.
  5. Damiano Sandri & Fabian Valencia, 2012. "Balance-Sheet Shocks and Recapitalizations," IMF Working Papers 12/68, International Monetary Fund.

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