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Did the TARP Expand or Contract Bank Lending? A Numerical Simulation Using a Financial Accelerator Model

Author

Listed:
  • Yuki Takahashi

    (State University of New York at Stony Brook)

Abstract

This paper examines whether capital injections implemented under the Troubled Assets Relief Program (TARP) expanded or contracted bank lending within a general equilibrium framework. Using Gertler and Kiyotaki (2010)'s financial accelerator model, an economy that is hit by a financial crisis but injects government capital into its banks as a policy response is simulated. The simulation results imply that the TARP capital injections were likely to have contracted bank lending. However, the simulation results do not rule out the possibility that the TARP capital injections benefited the economy through channels other than lending expansion. These implications contribute to the literature on the effectiveness of the TARP capital injections on bank lending, which has been a subject of empirical studies.

Suggested Citation

  • Yuki Takahashi, 2015. "Did the TARP Expand or Contract Bank Lending? A Numerical Simulation Using a Financial Accelerator Model," Economics Bulletin, AccessEcon, vol. 35(2), pages 1154-1159.
    • Handle: RePEc:ebl:ecbull:eb-14-00740
    as

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    References listed on IDEAS

    as
    1. Gertler, Mark & Kiyotaki, Nobuhiro, 2010. "Financial Intermediation and Credit Policy in Business Cycle Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 11, pages 547-599, Elsevier.
    2. Allen N. Berger & Raluca Roman, 2015. "Did saving Wall Street really save Main Street : the real effects of TARP on local economic conditions," Research Working Paper RWP 15-13, Federal Reserve Bank of Kansas City.
    3. Montgomery, Heather & Takahashi, Yuki, 2014. "The economic consequences of the TARP: The effectiveness of bank recapitalization policies in the U.S," Japan and the World Economy, Elsevier, vol. 32(C), pages 49-64.
    4. Berger, Allen N. & Roman, Raluca A., 2017. "Did Saving Wall Street Really Save Main Street? The Real Effects of TARP on Local Economic Conditions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(5), pages 1827-1867, October.
    5. Li, Lei, 2013. "TARP funds distribution and bank loan supply," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4777-4792.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    bank; crisis; TARP; capital injection; dynamic stochastic general equilibrium; financial accelerator;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services

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