Affiliation:
1. Department of Economics, Ghent University (email: )
2. Universidad del Rosario (email: )
3. Central Bank of Colombia (email: )
Abstract
We investigate the impact of fiscal expansions on firm investment by exploiting firms with multiple banking relationships. Further, we conduct a localized approach and compare the lending behavior of banks that barely met and missed the criteria of being a primary dealer, as well as barely winners and losers at government auctions. Our results indicate that a 1 percentage point increase in primary dealer banks’ bonds-to-assets ratio decreases loans by 0.2 percent, which leads to declines in firm investment, profits, and wages. Our findings are grounded in a quantitative model with which we compute the cost of borrowing on the economy. (JEL D22, E12, E23, G21, G32, H63, O11)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance