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Fiscal policy, banks and the financial crisis

Robert Kollmann (), Marco Ratto (), Werner Roeger and Jan in 't Veld
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Werner Roeger: DG-ECFIN, European Commission

No 234, Working Paper Research from National Bank of Belgium

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: financial crisis; bank rescue measures; fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 E32 G21 H63 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
Date: 2012-10
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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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