FISCAL POLICY AND LENDING RELATIONSHIPS |
| |
| Authors: | GIOVANNI MELINA STEFANIA VILLA |
| |
| Institution: | Melina: Department of Economics, Social Sciences Building, City University London, Whiskin Street, London, EC1R 0JD, UK. Phone +44 20 7040 4522, Fax +44 20 7040 8580, E‐mail giovanni.melina.1@city.ac.uk |
| |
| Abstract: | This paper studies how fiscal policy affects loan market conditions in the United States. 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 dynamic stochastic general equilibrium 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. (JEL E44, E62) |
| |
| Keywords: | |
|
|
