Effects of Fiscal Policy on Credit Markets

Alan Auerbach, Yuriy Gorodnichenko and Daniel Murphy

AEA Papers and Proceedings, 2020, vol. 110, 119-24

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.

JEL-codes: E32 E44 E52 E62 G20 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Working Paper: Effects of Fiscal Policy on Credit Markets (2020)
Working Paper: Effects of Fiscal Policy on Credit Markets (2020)
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DOI: 10.1257/pandp.20201074

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