Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures
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.
Document Type: Research Article
Publication date: May 1, 2012
More about this publication?
- The American Economic Review is a general-interest economics journal. The journal is published quarterly and contains articles on a broad range of topics. Established in 1911, the AER is among the nation's oldest and most respected scholarly journals in the economics profession.
- Editorial Board
- Information for Authors
- Subscribe to this Title
- Membership Information
- Terms & Conditions
- e-Publications for AEA Members
- ingentaconnect is not responsible for the content or availability of external websites