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Credit subsidies

Author

Listed:
  • Correia, Isabel
  • De Fiore, Fiorella
  • Teles, Pedro
  • Tristani, Oreste

Abstract

Credit subsidies are an alternative to interest rate and credit policies when dealing with high and volatile credit spreads. In a model where credit spreads move in response to shocks to the net worth of financial intermediaries, credit subsidies are able to stabilize those spreads avoiding the transmission to the real economy. Interest rate policy can be a substitute for credit subsidies but is limited by the zero bound constraint. Credit subsidies overcome this constraint. They are superior to a policy of credit easing as long as the government is less efficient than financial intermediaries in providing credit. JEL Classification: E31, E40, E44, E52, E58, E62, E63

Suggested Citation

  • Correia, Isabel & De Fiore, Fiorella & Teles, Pedro & Tristani, Oreste, 2016. "Credit subsidies," Working Paper Series 1877, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20161877
    Note: 24907
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    References listed on IDEAS

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    More about this item

    Keywords

    banks; costly enforcement; credit subsidies; monetary policy; zero lower bound on nominal interest rates;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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

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