E-mail alert  |  Contact  
Search:       Go  
Background  |   Sponsoring institutions  |   Editorial board   |   Advisory board   |   Associate editors
Call for papers  |   Submission guidelines  |   Editorial process
Current issue  |   Past issues  |  
September 2014 issue
List of authors
 
Hördahl, Tistani
Nakov, Thomas
Kelly, McQuinn
Aizenman, Glick
Arrondel, Savignac, Tracol
Cecchetti, Kohler
Bauer, Rudebusch
Tomura
IJCB Home   Read the journal   Past issue
Past issues
2017
 
December
September
June
March
February
2016
 
December
September
June
March
2015
 
December
September
June
March
January
2014
 
December
September
June
March
2013
 
December
September
June
March
January
2012
 
December
September
June
March
January
2011
 
December
September
June
March
2010
 
December
September
June
March
2009
 
December
September
June
March
2008
 
December
September
June
March
2007
 
December
September
June
March
2006
 
December
September
June
March
2005
 
December
September
May

On the Hook for Impaired Bank Lending: Do Sovereign-Bank Interlinkages Affect the Net Cost of a Fiscal Stimulus?

by Robert Kellya and Kieran McQuinnb

Abstract

Recently, some notable contributions suggest that discretionary fiscal policy can be an effective and self-financing policy option in the presence of extreme macroeconomic conditions. Given the special relationship between the Irish sovereign and its main financial institutions, this paper assesses the implications for the Irish fiscal accounts of certain macroeconomic policy responses. Using a comprehensive empirical framework, the paper examines the relationship between house prices, unemployment, and mortgage arrears. Loan loss forecasts over the period 2012–14 are then generated for the mortgage book of the main Irish financial institutions under two different scenarios. It is shown that macroeconomic policies, which alleviate levels of mortgage distress, improve the solvency position of the guaranteed Irish institutions, thereby reducing the sovereign’s future capital obligations. Thus, the unique situation the sovereign finds itself in vis-´a-vis its main financial institutions may have significant implications for the net cost of a fiscal stimulus.

JEL Codes: G21, R30, C58.

 
Full article (PDF, 34 pages, 1549 kb)


a Central Bank of Ireland
b Economic and Social Research Institute (ESRI)