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The Balance Sheet Channel of Fiscal Policy: Sovereign Exposure and Credit to Firms in the European Periphery
This paper provides empirical evidence on the balance sheet channel of fiscal policy in peripheral European economies. Our findings using a Panel VAR, reveal that shifts in financial institutions' balance sheets following a debt-financed fiscal expansion, reduce credit provision and investment in these countries. Moreover, the analysis indicates that economies with higher sovereign exposure experienced higher credit crunches and investment declines […]