Fiscal policies and credit regimes: a tvar approach

Tommaso Ferraresi (), Andrea Roventini and Giorgio Fagiolo ()
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Tommaso Ferraresi: Istituto regionale di programmazione economica della Toscana, university of Pisa, Postal: Villa la Quite alle Montalve Via Pietro Dazzi 1, 50141 Firenze

No 2013-02, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: In the present work we investigate how the state of credit markets non-linearly affects the impact of fiscal policies. We estimate a Threshold Vector Autoregression (TVAR) model on U.S quarterly data for the period 1984-2010. We employ the spread between BAA-rated corporate bond yield and 10-year treasury constant maturity rate as a proxy for credit conditions. We find that the response of output to fiscal policy shocks are stronger and more persistent when the economy is in the "tight" credit regime. The fiscal multipliers are abundantly and persistently higher than one when firms face increasing financing costs, whereas they are feebler and often lower than one in the "normal" credit regime. On the normative side, our results suggest policy makers to carefully plan fiscal policy measures according to the state of credit markets

Keywords: Fiscal policy; threshold vector autoregression (TVAR); non-linear models; impulse-response functions; fiscal multipliers; credit frictions; financial accelerator (search for similar items in EconPapers)
JEL-codes: E32 E44 E62 J32 (search for similar items in EconPapers)
Date: 2013-02
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Fiscal Policies and Credit Regimes: A TVAR Approach (2015)
Working Paper: Fiscal Policies and Credit Regimes: A TVAR Approach (2013)
Working Paper: Fiscal Policies and Credit Regimes: A TVAR Approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1302

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