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Discussion Paper Details

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Title: Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measures

Author(s): Robert Kollmann, Werner Roeger and Jan in't Veld

Publication Date: February 2012

Keyword(s): financial crisis, fiscal stimulus, real activity and state support for banks

Programme Area(s): International Macroeconomics

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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Bibliographic Reference

Kollmann, R, Roeger, W and Veld, J. 2012. 'Fiscal Policy in a Financial Crisis: Standard Policy vs. Bank Rescue Measures'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8829