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Fiscal policy and lending relationships

  • Giovanni MELINA
  • Stefania VILLA

This paper studies how fiscal policy affects loan market conditions. 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 Real Business Cycle 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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File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps12/Dps1206.pdf
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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces12.06.

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Date of creation: May 2012
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Handle: RePEc:ete:ceswps:ces12.06
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  1. Mertens, Karel & Ravn, Morten O, 2009. "Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated U.S. Tax Policy Shocks," CEPR Discussion Papers 7370, C.E.P.R. Discussion Papers.
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  26. repec:cup:cbooks:9781107014732 is not listed on IDEAS
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