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American Economic Review: Vol. 102 No. 3 (May 2012)

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Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures

Article Citation

Kollmann, Robert, Werner Roeger, and Jan in't Veld. 2012. "Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures." American Economic Review, 102(3): 77-81.

DOI: 10.1257/aer.102.3.77

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.

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Authors

Kollmann, Robert (ECARES, Free U Brussels and U Paris, Est Creteil Val-de-Marne)
Roeger, Werner (DG-ECFIN)
in't Veld, Jan (DG-ECFIN)

JEL Classifications

E44: Financial Markets and the Macroeconomy
E62: Fiscal Policy
E32: Business Fluctuations; Cycles
F44: International Business Cycles
G01: Financial Crises


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