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Fiscal policy and credit spreads: Evidence from a SVAR

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  • Maria Pia Olivero

    (Drexel University)

Abstract

We study the interaction between fiscal policy, economic activity and credit market conditions using a structural VAR approach similar to that in Blanchard and Perotti (2002). We show that failing to account for the endogenous response of credit spreads to fiscal policy shocks results in the real effects of these shocks being underestimated. We see our results as indicating the presence of a not yet well understood "credit channel of fiscal policy transmission".

Suggested Citation

  • Maria Pia Olivero, 2019. "Fiscal policy and credit spreads: Evidence from a SVAR," Economics Bulletin, AccessEcon, vol. 39(2), pages 1393-1403.
    • Handle: RePEc:ebl:ecbull:eb-18-00517
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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I2-P132.pdf
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    References listed on IDEAS

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    1. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
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    3. Aliaga-Díaz, Roger & Olivero, María Pía, 2010. "Is there a financial accelerator in US banking?: Evidence from the cyclicality of banks' price-cost margins," Economics Letters, Elsevier, vol. 108(2), pages 167-171, August.
    4. Mandelman, Federico S., 2010. "Business cycles and monetary regimes in emerging economies: A role for a monopolistic banking sector," Journal of International Economics, Elsevier, vol. 81(1), pages 122-138, May.
    5. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, June.
    6. Aart Kraay, 2012. "How large is the Government Spending Multiplier? Evidence from World Bank Lending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 829-887.
    7. Dario Caldara & Edward Herbst, 2019. "Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(1), pages 157-192, January.
    8. Roger Aliaga‐Díaz & María Pía Olivero, 2011. "The Cyclicality Of Price‐Cost Margins In Banking: An Empirical Analysis Of Its Determinants," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 26-46, January.
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    Cited by:

    1. Hristov, Atanas, 2022. "Credit spread and the transmission of government purchases shocks," Economic Modelling, Elsevier, vol. 107(C).

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    More about this item

    Keywords

    fiscal policy; credit spreads;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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