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Evaluating the Macroeconomic Effects of Government Support Measures to Financial Institutions in the EU

Jan in ‘t Veld and Werner Roeger

Evaluating the Macroeconomic Effects of Government Support Measures to Financial Institutions in the EUpdf(492 kB) Choose translations of the previous link 

This paper analysis the macroeconomic effects of government support measures to the financial sector using a microfounded structural model. We simulate a crisis scenario in which the economy is hit by a severe financial shock and is subject to financial market imperfections. We then look at three types of measures: purchases of toxic assets, bank recapitalisation measures and government loan guarantees. State support to banks are found to help propping up the value of banks and reduce the risk premium that had emerged, so supporting corporate investment which had been particularly badly affected in the crisis.

(European Economy. Economic Papers. 453. April 2012. Brussels. PDF. 24pp. Tab. Graph. Bibliogr. Free.)

KC-AI-12-453-EN-N (online)
ISBN ISBN 978-92-79-22974-9 (online)
doi:10.10.2765/26024 (online)

JEL classification: C54 , E62, E32, E44 , G21 , H62

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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