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

Author Info

Listed author(s):
  • Robert Kollmann
  • Werner Roeger
  • Jan in'tVeld

Abstract

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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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/108554/1/2012-006-KOLLMANN_ROEGER_INTVELD-fiscalpolicy.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2012-006.

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Length: 13 p.
Date of creation: Jan 2012
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/108554
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Keywords: State support for banks; financial crises; fiscal stimulus; real activity;

Other versions of this item:

Find related papers by JEL classification:
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
  • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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  1. Günter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & René Lalonde & Douglas Laxton & Jesper Lindé & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Carlos d, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
  2. Kollmann, Robert & Enders, Zeno & Müller, Gernot J., 2011. "Global banking and international business cycles," European Economic Review, Elsevier, vol. 55(3), pages 407-426, April.
  3. Thorsten Drautzburg & Harald Uhlig, 2015. "Fiscal Stimulus and Distortionary Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 894-920, October.
  4. Kollmann, Robert, 2012. "Global Banks, Fiscal Policy and International Business Cycles," MPRA Paper 69887, University Library of Munich, Germany.
  5. Luc Laeven & Fabián Valencia, 2013. "The Real Effects of Financial Sector Interventions during Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 147-177, 02.
  6. Robert Kollmann, 2013. "Global Banks, Financial Shocks, and International Business Cycles: Evidence from an Estimated Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 159-195, December.
  7. Damiano Sandri & Fabian Valencia, 2012. "Balance-Sheet Shocks and Recapitalizations," IMF Working Papers 12/68, International Monetary Fund.
  8. 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.
  9. Robert Kollmann, 2012. "Global Banks, Financial Shocks and International Business Cycles: Evidence from Estimated Models," 2012 Meeting Papers 840, Society for Economic Dynamics.
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