NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Effects of Fiscal Policy on Credit Markets

Alan J. Auerbach, Yuriy Gorodnichenko, Daniel Murphy

NBER Working Paper No. 26655
Issued in January 2020
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics, Public Economics

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.

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Document Object Identifier (DOI): 10.3386/w26655

 
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