Working Paper: CEPR ID: DP8829
Authors: Robert Kollmann; Werner Roeger; Jan Int Veld
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. 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.
Keywords: financial crisis; fiscal stimulus; real activity; state support for banks
JEL Codes: E62; E63; G21; G28; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government Purchases (H59) | Decreased Investment (G31) |
| State Aid to Banks (G28) | Increased Bank Capital (G28) |
| Increased Bank Capital (G28) | Lower Lending Spread (G21) |
| Lower Lending Spread (G21) | Increased Investment (E22) |
| Increased Investment (E22) | Increased GDP (E20) |
| State Aid to Banks (G28) | Increased Investment (E22) |
| State Aid to Banks (G28) | Increased GDP (E20) |