European Economy. Economic Papers
Jan in 't Veld (European Commission), Werner Röger (European Commission)
Evaluating the Macroeconomic Effects of Government Support Measures to Financial Institutions in the EU(481 kB)
(European Economy. Economic Papers. 453. April 2012.
Brussels. PDF. 24pp. Tab. Graph. Bibliogr. Free.)
KC-AI-12-453-EN-N ISBN: ISBN 978-92-79-22974-9
Evaluating the Macroeconomic Effects of Government Support Measures to Financial Institutions in the EU
Summary for non-specialists(23 kB)
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.
JEL classification: C54 , E62, E32, E44 , G21 , H62