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Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measures

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

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8829.

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Date of creation: Feb 2012
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Handle: RePEc:cpr:ceprdp:8829
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  1. Robert KOLLMANN, 2011. "Global Banking and International Business Cycles," 2011 Meeting Papers 20, Society for Economic Dynamics.
  2. Todd B. Walker & Nora Traum & Eric M. Leeper, 2011. "The Fiscal Multiplier Morass: A Bayesian Perspective," 2011 Meeting Papers 583, Society for Economic Dynamics.
  3. Damiano Sandri & Fabian Valencia, 2012. "Balance-Sheet Shocks and Recapitalizations," IMF Working Papers 12/68, International Monetary Fund.
  4. Robert Kollmann, 2012. "Global banks, financial shocks and international business cycles: evidence from an estimated model," Globalization and Monetary Policy Institute Working Paper 120, Federal Reserve Bank of Dallas.
  5. Fabian Valencia & Luc Laeven, 2011. "The Real Effects of Financial Sector Interventions During Crises," IMF Working Papers 11/45, International Monetary Fund.
  6. 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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