Fiscal Policy and Lending Relationships

Giovanni Melina and Stefania Villa

No 2013/141, IMF Working Papers from International Monetary Fund

Abstract: This paper studies how fiscal policy affects loan market conditions in the US. 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 Dynamic Stochastic General Equilibrium 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.

Keywords: WP; government spending; Fiscal policy; deep habits; lending relationships; lending relationship; government spending expansion; relationship duration; government spending shock; consumption crowding in; market condition; boosting lending; government consumption expenditure; Consumption; Loans; Private consumption; Government consumption; Global (search for similar items in EconPapers)
Pages: 48
Date: 2013-06-05
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: FISCAL POLICY AND LENDING RELATIONSHIPS (2014)
Working Paper: Fiscal policy and lending relationships (2012)
Working Paper: Fiscal Policy and Lending Relationships (2011)
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