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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 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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/141.

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Length: 48
Date of creation: 05 Jun 2013
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Handle: RePEc:imf:imfwpa:13/141

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Keywords: Fiscal policy; United States; Banking sector; Loans; Economic models; deep habits; lending relationships; government spending; fiscal stimulus; government spending shocks; budget constraint; fiscal shocks; government expenditure; government consumption expenditure; discretionary fiscal policy; fiscal expansion; fiscal multipliers; government expenditures; consumption expenditures; aggregate demand; private consumption; general equilibrium; fiscal expansions; public expenditures; consumption decisions; local government spending; tax policy; taxation; government purchases; government spending multipliers; consumption goods;

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Cited by:
  1. Ji, K., 2013. "Essays on tax policy, institutions, and output," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-5928131, Tilburg University.
  2. Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2013. "Fiscal Policies and Credit Regimes: A TVAR Approach," Working Papers, University of Verona, Department of Economics 03/2013, University of Verona, Department of Economics.
  3. Hashmat Khan & Abeer Reza, 2013. "House Prices, Consumption, and Government Spending Shocks," Carleton Economic Papers, Carleton University, Department of Economics 13-10, Carleton University, Department of Economics.

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