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Fiscal Policy, Banks and the Financial Crisis

Jan In''t Veld, Robert Kollmann (), Marco Ratto () and Werner Roeger
Authors registered in the RePEc Author Service: Jan in 't Veld

No 9175, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the effectiveness of Euro Area (EA) fiscal policy, during the recent financial crisis, using an estimated New Keynesian model with a bank. A key dimension of policy in the crisis was massive government support for banks—that dimension has so far received little attention in the macro literature. We use the estimated model to analyze the effects of bank asset losses, of government support for banks, and other fiscal stimulus measures, in the EA. Our results suggest that support for banks had a stabilizing effect on EA output, consumption and investment. Increased government purchases helped to stabilize output, but crowded out consumption. Higher transfers to households had a positive impact on private consumption, but a negligible effect on output and investment. Banking shocks and increased government spending explain half of the rise in the public debt/GDP ratio since the onset of the crisis.

Keywords: bank rescue measures; financial crisis; fiscal policy (search for similar items in EconPapers)
JEL-codes: E32 E62 F41 G21 H63 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac and nep-opm
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Related works:
Journal Article: Fiscal policy, banks and the financial crisis (2013) Downloads
Working Paper: Fiscal Policy, Banks and the Financial Crisis (2012) Downloads
Working Paper: Fiscal Policy, Banks and the Financial Crisis (2012) Downloads
Working Paper: Fiscal policy, banks and the financial crisis (2012) Downloads
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