Fiscal Policy and Lending Relationships
International Monetary Fund (IMF)
KU Leuven - Faculty of Business and Economics (FBE); University of Foggia
May 16, 2012
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.
Number of Pages in PDF File: 24
Keywords: Fiscal policy, deep habits, bank spread, lending relationships
JEL Classification: E44, E62working papers series
Date posted: June 16, 2012
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