Credit subsidies

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

No 1877, Working Paper Series from European Central Bank

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 the transmission to the real economy. Interest rate policy can be a substitute for credit subsidies but 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. JEL Classification: E31, E40, E44, E52, E58, E62, E63

Keywords: banks; costly enforcement; credit subsidies; monetary policy; zero lower bound on nominal interest rates (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: 24907
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Related works:
Journal Article: Credit subsidies (2021)
Working Paper: Credit Subsidies (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161877

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