FISCAL POLICY AND LENDING RELATIONSHIPS | Zendy

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FISCAL POLICY AND LENDING RELATIONSHIPS

Author(s) -

MELINA GIOVANNI,

VILLA STEFANIA

Publication year - 2014

Publication title -

economic inquiry

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.823

H-Index - 72

eISSN - 1465-7295

pISSN - 0095-2583

DOI - 10.1111/ecin.12051

Subject(s) - economics , shock (circulatory) , vector autoregression , fiscal policy , financial accelerator , dynamic stochastic general equilibrium , monetary economics , loan , government spending , general equilibrium theory , structural vector autoregression , government (linguistics) , macroeconomics , monetary policy , medicine , market economy , welfare , linguistics , philosophy

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 )

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