Fiscal policy and lending relationships

Giovanni Melina and Stefania Villa

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: This paper studies how fiscal policy affects loan market conditions. 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 Real Business Cycle 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.

Date: 2012-05
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: FISCAL POLICY AND LENDING RELATIONSHIPS (2014)
Working Paper: Fiscal Policy and Lending Relationships (2013)
Working Paper: Fiscal Policy and Lending Relationships (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces12.06

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