Effects of Fiscal Policy on Credit Markets

Alan Auerbach, Yuriy Gorodnichenko and Daniel Murphy

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: Credit markets typically freeze in recessions: access to credit declines, and the cost of credit increases. A conventional policy response is to rely on monetary tools to saturate financial markets with liquidity. Given limited space for monetary policy in the current economic conditions, we study how fiscal stimulus can influence local credit markets. Using rich geographical variation in US federal government contracts, we document that, in a local economy, interest rates on consumer loans decrease in response to an expansionary government spending shock.

Date: 2020-05-01
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (8)

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Journal Article: Effects of Fiscal Policy on Credit Markets (2020)
Working Paper: Effects of Fiscal Policy on Credit Markets (2020)
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