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    Fiscal policy and lending relationships

    Melina, Giovanni and Villa, Stefania (2011) Fiscal policy and lending relationships. Working Paper. Birkbeck College, University of London, London, UK.

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    This paper studies how fiscal policy affects credit market conditions. First, it conducts a FAVAR analysis showing that the credit spread responds negatively to an expansionary government spending shock, while consumption, investment, and lending increase. Second, it illustrates that these results are not mimicked by a DSGE model where the credit spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it demonstrates that introducing deep habits in private and government consumption makes the model able to replicate empirics. Sensitivity checks and extensions show that core results hold for a number of model calibrations and specifications. The presence of banks exploiting lending relationships generates a financial accelerator effect in the transmission of fiscal shocks.


    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 1103
    Keyword(s) / Subject(s): Fiscal policy, deep habits, credit spreads, lending relationships
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: Administrator
    Date Deposited: 20 Jun 2013 09:44
    Last Modified: 02 Aug 2023 17:05


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