Virtual lecture: Amplifying a Fiscal Stimulus: The Role of Banks

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.

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Ramana Nanda (Imperial College London)

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via Zoom

Zur Person

Ramana Nanda is a Professor of Entrepreneurial Finance and Academic Lead at the Institute for Deep Tech Entrepreneurship at Imperial, a Research Fellow in the Financial Economics Programme of the CEPR and a Visiting Scholar at Harvard Business School. His research examines financing frictions facing new ventures, with an aim to help entrepreneurs with fundraising and to shed light on how financial intermediaries, corporate R&D and policy makers can improve the odds of selecting and commercializing the most promising ideas and technologies in the economy.

To join the lecture via Zoom, please register here.

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.