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Estimating the Effects of Standard Fiscal and Bank Rescue Measures

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

No 764, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: A key dimension of fiscal policy during the financial crisis was massive government support for the banking system. The macroeconomic effects of that support have, so far, received little attention in the literature. This paper fills this gap, using a quantitative dynamic model with a banking sector. We estimate the model for a Euro area quarterly dataset. The GDP multiplier of state aid to banks is in the same range as conventional fiscal spending multipliers. Our results suggest that state aid for banks may have a strong positive effect on real activity. Bank state aid multipliers are in the same range as conventional fiscal spending multipliers. Support for banks has a positive effect on investment, while a rise in government purchases crowds out investment.

Date: 2012
New Economics Papers: this item is included in nep-ban, nep-cba and nep-eec
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