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Fiscal policy and lending relationships

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  • Giovanni MELINA
  • Stefania VILLA

Abstract

This paper studies how fiscal policy affects loan market conditions. 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 Real Business Cycle 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.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces12.06.

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Date of creation: May 2012
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Handle: RePEc:ete:ceswps:ces12.06

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Cited by:
  1. Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2013. "Fiscal policies and credit regimes: a tvar approach," Documents de Travail de l'OFCE 2013-02, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. Ji, K., 2013. "Essays on tax policy, institutions, and output," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5928131, Tilburg University.
  3. Hashmat Khan & Abeer Reza, 2013. "House Prices, Consumption, and Government Spending Shocks," Carleton Economic Papers 13-10, Carleton University, Department of Economics.

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