Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures
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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Volume (Year): 102 (2012)
Issue (Month): 3 (May)
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- Robert Kollmann, 2012. "Global Banks, Financial Shocks and International Business Cycles: Evidence from Estimated Models," 2012 Meeting Papers 840, Society for Economic Dynamics.
- 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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