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Friday Seminar - "Amplifying a Fiscal Stimulus: The Role of Banks" - Ramana Nanda (Imperial College London)

Ramana Nanda, Professor of Entrepreneurial Finance and Academic Lead of the Institute for Deep Tech Entrepreneurship at Imperial College London, will present his research at SSE main building (Room A720) on Friday, November 3 at 10:30 CET.

"Amplifying a Fiscal Stimulus: The Role of Banks"

Abstract: Exploiting increases in US defense spending following the 9/11 attacks, we show that the procurement-driven fiscal stimulus led to lower non-performing loans at banks. In turn, constrained banks responded by increasing lending to small businesses in not-directly-impacted counties. We find the additional economic activity enabled by the increased lending capacity is quantitatively important – amplification from this ‘credit multiplier’ is about 10%-15% as large as typical fiscal multipliers estimated in the literature. Since intermediaries are more likely to face constraints in times when a fiscal stimulus is needed, this ’credit multiplier’ can substantially amplify a stimulus’ overall impact in downturns.

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