Credit subsidies

Isabel Correia, Fiorella De Fiore, Pedro Teles and Oreste Tristani

Journal of Monetary Economics, 2021, vol. 118, issue C, 2-14

Abstract: Credit subsidies are an alternative to interest rate and credit policies when dealing with high and volatile credit spreads. In a model where credit spreads move in response to shocks to the net worth of financial intermediaries, credit subsidies are able to stabilize those spreads avoiding repercussions on the real economy. Interest rate policy can be a substitute for credit subsidies but it is limited by the zero bound constraint. Credit subsidies overcome this constraint. They are superior to a policy of credit easing as long as the government is less efficient than financial intermediaries in providing credit.

Keywords: Credit subsidies; Monetary policy; Zero lower bound on nominal interest rates; Banks; Costly enforcement (search for similar items in EconPapers)
JEL-codes: E31 E40 E44 E52 E58 E62 E63 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Credit Subsidies (2018)
Working Paper: Credit subsidies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:118:y:2021:i:c:p:2-14

DOI: 10.1016/j.jmoneco.2018.12.002

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