Effects of Fiscal Policy on Credit Markets
20 Pages Posted: 13 Jan 2020 Last revised: 1 May 2023
Date Written: January 2020
Abstract
Credit 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 U.S. federal government contracts, we document that, in a local economy, interest rates on consumer loans decrease in response to an expansionary government spending shock.
Suggested Citation: Suggested Citation
Auerbach, Alan Jeffrey and Gorodnichenko, Yuriy and Murphy, Daniel, Effects of Fiscal Policy on Credit Markets (January 2020). NBER Working Paper No. w26655, Available at SSRN: https://ssrn.com/abstract=3518267
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