Effects of Fiscal Policy on Credit Markets
AbstractCredit markets typically freeze in recessions: access to credit declines, and the cost of credit increases. A conventional policy response is to rely on monetary tools to saturate financial markets with liquidity. Given limited space for monetary policy in the current economic conditions, we study how fiscal stimulus can influence local credit markets. Using rich geographical variation in US federal government contracts, we document that, in a local economy, interest rates on consumer loans decrease in response to an expansionary government spending shock.
CitationAuerbach, Alan J., Yuriy Gorodnichenko, and Daniel Murphy. 2020. "Effects of Fiscal Policy on Credit Markets." AEA Papers and Proceedings, 110: 119-24. DOI: 10.1257/pandp.20201074
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- E62 Fiscal Policy
- G20 Financial Institutions and Services: General