1

Fiscal Policy with

Credit Constrained Households

Werner Roeger and Jan in ’t Veld

DG ECFIN - Economic and Financial AffairsEuropean Commission

June 2009

The views expressed here are those of the author and should not be attributed to the European Commission.

2

Revival of interest in discretionary fiscal policy

Earlier scepticism on effectiveness of fiscal policy: • Dominance of supply shocks in the past• Financial liberalisation

Severity of financial crisis• sharp fall in aggregate demand• tightening credit constraints• limits of monetary policy

Policy response:• European Economic Recovery Plan• Fiscal packages announced by EU member states : 1.1% of

GDP in 2009, 0.6% of GDP 2010.• G-20 : 1.8% of GDP in 2009, 1.3% in 2010 ($1.35 trl)

3

Structure of the presentation

1. Literature review of fiscal multipliers

2. Empirical evidence credit constraints

3. QUEST III with credit constrained households

4. Impulse responses to government spending and tax shocks (with and without credit-constrained households)

5. The role of monetary policy

4

Overview of empirical literature

VARs

• Results in the VAR literature differ widely. • The highest multipliers are obtained for US

data (Blanchard and Perotti (2002)), • Estimates for European data seem to be less

significant (Perotti (2005), De Castro and Fernandez de Cos (2006), Afonso and Sousa (2009))

5

Overview of empirical literature:DSGE models

Since the result obtained by Blanchard and Perotti is often regarded as representing a stylised fact, several attempts have been made to come up with DSGE models which can generate positive consumption co-movement.

– Ravn et al. (2007) introduce a market structure into the model which implies a strong decline in the mark up in the case of a government spending shock in order to generate a positive consumption effect.

– Monacelli et al. (2008) introduce a utility function which implies a stronger comovement between hours worked and consumption in order to generate the same effect.

– Gali et al. (2007) generate a positive effect on private consumption by introducing substantial capital market imperfections in the form of liquidity constrained households.

6

Overview of empirical literature: DSGE But empirically estimated DSGE models have problems

to obtain such an effect:– Ratto et al. (2009a) estimate a 1st year multiplier for

gov. cons. shocks of around 0.6 with an estimated share of liquidity constrained households of about 30% for the euro area, similar for gov. inv. but lower for transfers. But it is impossible to replicate the Gali result despite liquidity constrained consumers.

– Also Coenen and Straub (2005) find for a similar share of non-Ricardian households a decline in aggregate consumption.

Credit constraints constitute an attractive alternative hypothesis. Given the uncertainty about income and wealth developments of borrowers, banks typically impose collateral constraints.

This paper therefore explores the consequences for fiscal policy of this credit market friction.

7

Figure 1: Euro area:

Credit standards applied to the approval of loans to households (net percentages of banks reporting tightening credit standards)

-20

-10

0

10

20

30

40

50

loans for house purchases consumer credit and other loans

8

Figure 2: US:

Credit standards applied to the approval of loans to households (net percentages of banks reporting tightening credit standards)

Net Percentage of Domestic Respondents Tightening Standards for Mortgage Loans

-20

0

20

40

60

80

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

All Prime Nontraditional Subprime

9

Determinants size fiscal multipliers

1. Degree credit constraints (higher mpc)2. Monetary policy accommodation

( if Δ i = 0 => r < 0 )3. Composition (spending > revenue)4. Duration (temporary > permanent)

Current financial crisis:• Increase credit-constrained households • Monetary policy more likely to be

accommodative Higher fiscal multipliers

10

QUEST III housing model

Extension of the QUEST III model with a housing sector and credit-constrained consumers along the lines of the financial accelerator literature.(Kiyotaki and Moore (1997), Iacoviello (2005), Iacoviello and Neri (2008), Monacelli (2007), Calza, Monacelli and Stracca (2007))

Disaggregation of the household sector into borrowers and lenders.

Credit-constrained households: intertemporal optimising over consumption, leisure, housing subject to borrowing constraint (collateral constraint – endogenously linked to nominal value of asset (housing)

Positive co-movement consumption and residential investment

11

Households

Ricardian/lenders: intertemporal optimising (utility separable in consumption, leisure and housing services)

• Full access to financial markets

Credit-constrained / borrowers: optimising utility• Borrow from Ricardian households • Face collateral constraint on borrowing

Liquidity-constrained (hand-to-mouth):• Consume their current disposable income

Households 1: Ricardian households - lenders

Period utility function separable in C, leisure and housing services HRicardian hh hold government bonds and bonds issued by domestic and foreign hh, real capital of T and NT sector

1

00

,1

,,

00

,1

,

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,,1

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,

,,,,

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)1(

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)1(

))1((

PrPr))1((

2)1())1((

(.))1)(1())(1(

)()1()1()1()1(

),1,(

tLt

Landtt

tr

t

rt

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Landt

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rt

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ct

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rt

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t

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rt

trr

LandgJLand

HJH

HJH

KJK

TJpHpit

W

WLwtKptit

BrerriskrBBrBrer

BBItpItpIitcpCpt

HLCUVMax

Households 2: Credit-constrained households - borrowers

Intertemporally optimising (as Ricardians) (i.e. not hand-to-mouth) but:

1. higher rate of time preference βc<βr and 2. they face a collateral constraint on their borrowing : They

borrow Bc from domestic Ricardian households

c

tHt

ct

tc

tt

ct

ct

HcHt

ct

tc

t

ct

ct

t

cLSt

t

tWctt

Wt

ctt

ct

cHt

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)1(

)1(

2)1())1()1()1(

),1,(

00

1,

00

0

,

1

2

1,

0

000

Housing investment:Shadow price of housing capital ςt = PDV of ratio of the marginal utility of housing services H and consumption C

CC:

)1()1()1(

1

)1(

)1)((

)1( 11

1

111

1 Hct

ht

rt

ct

Ht

GDPtt

tHt

ct

rt

Ct

ctt

rtr

ct

Ht

rt

tptrptH

pthCC

tp

)1()1()1(

)1()1(

)1(

)1)((

)1( 11

1

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1 Hct

Ht

ct

ct

Ht

GDPtt

tttH

tct

ct

Ct

ctt

ctc

ct

Ht

ct

tptrptH

pthCC

tp

Note: Lagrange multiplier of the collateral constraint ψ - acts like premium on interest rate (fluctuates positively with tightness of constraint)

Ric:

Consumption:

)1(

)1()(

1

1

t

tc

tct

tctt r

hCC

hCC

)1()(

1

1t

r

trt

trtt r

hCC

hCC

Ric:

CC:

15

(24) WtC

t

tCt

Wt

ltc

lrtc

rctc

c

ltL

lrtL

rctL

c

P

W

t

t

UsUsUs

UsUsUs

)1(

)1(

,,,

,1,1,1

(25)

))1(())1((//11 11 tWtt

WtW

Wt sfwsfw 10 sfw

(23) lLSt

ltt

ltt

wt

lt

ct

ct TTRLWtCPt ,)1()1(

Households 3: Liquidity-constrained households

“Hand-to-mouth”: Consume entire disposable income (no intertemporal optimisation)

Wage setting

Trade union maximises a joint utility function(distributed equally – population weigths si )

Wage rule :

Wage mark up:

16

(26a) lt

lct

crt

rt CsCsCsC

(26b) lt

lct

crt

rt LsLsLsL with l

tct

rt LLL .

(27) rtc

rct B

s

sB .

Liquidity constrained households do not own financial assets:

0 lt

Flt

lt KBB

Credit constrained households only engage in debt contracts with Ricardian households:

Aggregation:

17

Household decision rules in a special case: 01 ct

IH tH

Consumption/savings decision

(20) )1(

)1()(

1

1

t

tc

tct

tctt r

hCC

hCC

Housing investment decision

(22') Ct

Ht

tHH

tt

tct

cct

p

pi

hCCH

)(

)(1

1

1

A tightening of the credit constraint ( 0 t ) leads to 1) A decline in the housing investment to consumption ratio 2) A reduction in current consumption

18

Figure 3: Response of consumption to changes in current income (absolute deviations)

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4

Y CCC CRIC

19

Figure 4: Response of consumption to changes in interest rates (% deviations)

-10

-5

0

5

10

15

20

25

30

2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4

R CCC CRIC

20

Credit-constrained hh.:

Implications for fiscal policy:

• Introduction of credit-constraints raises marginal propensity to consume out of current income

• Credit-constrained households react stronger to fall in real interest rates (raises multiplier when monetary policy is accommodative)

21

Fiscal policy

GBC:

Tax rule:

tt

tDEFT

tt

tBwt PY

Bb

PY

Bt )(

11

1

tLS

ttI

tKt

Ktt

ct

cttt

wt

ttNPART

tW

ttU

t

tGt

Ct

Gt

Ctttt

TKPitCPtLWt

TRCCLPOPPOPWbTR

INVSUBIPCPBiB

1

1

)(

)1(

22

EU US Nom. Rigidities: Avg. duration between price adjustments (Quarters) 5.5 5 Avg. wage contract length (Quarters) 4.5 4.5 Real Rigidities: Labour adjustment cost (% of total add. wage costs) 13 10 Labour supply elasticity (1/ ) 1/5 1/3 Semi-wage elasticity w.r.t. employment rate ( )/ w 0.33 0.20

Capital adjustment cost 20 20 Investment adjustment cost 75 75 Consumption: Share of liquidity-constrained consumers slc 0.4 0.4 Share of credit-constrained consumers (1-slc)(1-snlc) 0.3 (CC)

0 (RIC) 0.3 (CC) 0 (RIC)

Share of non-constrained consumers (1-slc)snlc 0.3 (CC) 0.6 (RIC)

0.3 (CC) 0.6 (RIC)

Downpayment rate χ 0.25 0.25 Habit persistence h 0.7 0.7 Monetary policy: Lagged interest rate 0.85 0.85 Consumer price inflation 1.5 1.5 Output gap 0.05 0.05 National accounts decomposition: Consumption 0.59 0.64 Investment tradedables 0.06 0.05 Investment non-tradables 0.07 0.06 Investment residential 0.06 0.06 Government consumption 0.18 0.15 Government investment 0.04 0.04 Exports 0.18 0.15 Imports 0.18 0.15 Transfers to households 0.16 0.13

23

Impulse responses to gov. spending and tax shocks

Models:

Household shares:

RIC_

──────

CC_

- - - - - - -

Ricardian households (NLC) 0.6 0.3

Credit constrained hh (CC) - 0.3

Liquidity constrained hh (LC) 0.4 0.4

• Two region version of model: EU and RoW• Standardised fiscal shocks: 1% of GDP (1 year )• Global shocks

24

Figure 1 Temporary increase government consumption:RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_GDPR CC_GDPR

GDP

0 1 2 3 4 5 6 7 8 9 10-0.2

0.0

0.2

0.4

0.6

0.8

1.0

RIC_CLC CC_CLC

Consumption: liquidity-constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

RIC_CTOT CC_CTOT

Consumption

0 1 2 3 4 5 6 7 8 9 10-0.10

-0.08

-0.06

-0.04

-0.02

0.00

0.02

0.04

RIC_CNLC CC_CNLC CC_CCC

Consumption: Non-constrained and credit constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.20

-0.15

-0.10

-0.05

-0.00

0.05

0.10

25

Figure 1 Temporary increase government consumption:RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_ITOT CC_ITOT

Corporate investment

0 1 2 3 4 5 6 7 8 9 1 0-0 .3 5

-0 .3 0

-0 .2 5

-0 .2 0

-0 .1 5

-0 .1 0

-0 .0 5

-0 .0 0

0 .0 5

RIC_L CC_L

Employment

0 1 2 3 4 5 6 7 8 9 1 0-0 .2

0 .0

0 .2

0 .4

0 .6

0 .8

1 .0

RIC_R CC_R

Real in terest rate

0 1 2 3 4 5 6 7 8 9 1 0-0 .0 2

0 .0 0

0 .0 2

0 .0 4

0 .0 6

0 .0 8

0 .1 0

0 .1 2

0 .1 4

RIC_IHOUSENLC CC_IHOUSENLC CC_IHOUSECC

Housing investment: Non-constrained and credit constrained hh

0 1 2 3 4 5 6 7 8 9 1 0-0 .1 5

-0 .1 0

-0 .0 5

0 .0 0

0 .0 5

0 .1 0

0 .1 5

RIC_WR CC_WR

Real wages

0 1 2 3 4 5 6 7 8 9 1 0-0 .0 5

0 .0 0

0 .0 5

0 .1 0

0 .1 5

0 .2 0

0 .2 5

0 .3 0

RIC_INF CC_INF

Inflation

0 1 2 3 4 5 6 7 8 9 1 0-0 .1 0

-0 .0 5

0 .0 0

0 .0 5

0 .1 0

0 .1 5

0 .2 0

0 .2 5

26

Figure 1b Temp. increase gov. cons. + mon. accommodation:RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_GDPR CC_GDPR

GDP

0 1 2 3 4 5 6 7 8 9 100.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

RIC_CLC CC_CLC

Consumption: liquidity-constrained hh.

0 1 2 3 4 5 6 7 8 9 100.0

0.1

0.2

0.3

0.4

0.5

0.6

RIC_CTOT CC_CTOT

Consumption

0 1 2 3 4 5 6 7 8 9 100.0

0.1

0.2

0.3

0.4

0.5

0.6

RIC_CNLC CC_CNLC CC_CCC

Consumption: Non-constrained and credit constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

27

Figure 1b Temp. increase gov. cons. + mon. accommodation:RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - -

RIC_ITOT CC_ITOT

Corporate investment

0 1 2 3 4 5 6 7 8 9 1 0-0 .1

0 .0

0 .1

0 .2

0 .3

0 .4

0 .5

RIC_L CC_L

Employment

0 1 2 3 4 5 6 7 8 9 1 0-0 .2

0 .0

0 .2

0 .4

0 .6

0 .8

1 .0

1 .2

1 .4

RIC_R CC_R

Real in terest rate

0 1 2 3 4 5 6 7 8 9 1 0-0 .4

-0 .3

-0 .2

-0 .1

-0 .0

0 .1

RIC_IHOUSENLC CC_IHOUSENLC CC_IHOUSECC

Housing investment: Non-constrained and cred it constrained hh

0 1 2 3 4 5 6 7 8 9 1 0-0 .2

0 .0

0 .2

0 .4

0 .6

0 .8

1 .0

RIC_WR CC_WR

Real wages

0 1 2 3 4 5 6 7 8 9 1 0-0 .10 .00 .10 .20 .30 .40 .50 .60 .70 .8

RIC_INF CC_INF

Inflation

0 1 2 3 4 5 6 7 8 9 1 00 .0

0 .1

0 .2

0 .3

0 .4

0 .5

0 .6

28

Figure 2 Temporary reduction labour taxes (1):RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_GDPR CC_GDPR

GDP

0 1 2 3 4 5 6 7 8 9 10-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

RIC_CLC CC_CLC

Consumption: liquidity-constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

RIC_CTOT CC_CTOT

Consumption

0 1 2 3 4 5 6 7 8 9 10-0.2

0.0

0.2

0.4

0.6

0.8

1.0

RIC_CNLC CC_CNLC CC_CCC

Consumption: Non-constrained and credit constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

29

Figure 2 Temporary reduction labour taxes (1):RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_ITOT CC_ITOT

Corporate investment

0 1 2 3 4 5 6 7 8 9 1 0-0 .1 2

-0 .1 0

-0 .0 8

-0 .0 6

-0 .0 4

-0 .0 2

0 .0 0

0 .0 2

0 .0 4

RIC_L CC_L

Employment

0 1 2 3 4 5 6 7 8 9 1 0-0 .1

0 .0

0 .1

0 .2

0 .3

0 .4

0 .5

RIC_R CC_R

Real in terest rate

0 1 2 3 4 5 6 7 8 9 1 0-0 .0 2

0 .0 0

0 .0 2

0 .0 4

0 .0 6

0 .0 8

0 .1 0

RIC_IHOUSENLC CC_IHOUSENLC CC_IHOUSECC

Housing investment: Non-constrained and cred it constrained hh

0 1 2 3 4 5 6 7 8 9 1 0-0 .1

0 .0

0 .1

0 .2

0 .3

0 .4

0 .5

0 .6

RIC_WR CC_WR

Real wages

0 1 2 3 4 5 6 7 8 9 1 0-0 .1 4

-0 .1 2

-0 .1 0

-0 .0 8

-0 .0 6

-0 .0 4

-0 .0 2

0 .0 0

0 .0 2

RIC_INF CC_INF

Inflation

0 1 2 3 4 5 6 7 8 9 1 0-0 .0 5 0

-0 .0 2 5

0 .0 0 0

0 .0 2 5

0 .0 5 0

0 .0 7 5

30

Figure 2b Temp. reduction lab. Taxes + mon. accommodation:RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_GDPR CC_GDPR

GDP

0 1 2 3 4 5 6 7 8 9 10-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

RIC_CLC CC_CLC

Consumption: liquidity-constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

RIC_CTOT CC_CTOT

Consumption

0 1 2 3 4 5 6 7 8 9 10-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

RIC_CNLC CC_CNLC CC_CCC

Consumption: Non-constrained and credit constrained hh.

0 1 2 3 4 5 6 7 8 9 10-0.5

0.0

0.5

1.0

1.5

2.0

2.5

31

Figure 2b Temp. reduction lab. Taxes + mon. accommodation:RIC_ : without credit-constrained hh ─────CC_ : with credit-constrained hh - - - - - -

RIC_ITOT CC_ITOT

Corporate investment

0 1 2 3 4 5 6 7 8 9 1 0-0 .0 2 5

0 .0 0 0

0 .0 2 5

0 .0 5 0

0 .0 7 5

0 .1 0 0

0 .1 2 5

0 .1 5 0

0 .1 7 5

RIC_L CC_L

Employment

0 1 2 3 4 5 6 7 8 9 1 0-0 .1

0 .0

0 .1

0 .2

0 .3

0 .4

0 .5

0 .6

0 .7

RIC_R CC_R

Real in terest rate

0 1 2 3 4 5 6 7 8 9 1 0-0 .1 2

-0 .1 0

-0 .0 8

-0 .0 6

-0 .0 4

-0 .0 2

0 .0 0

0 .0 2

RIC_IHOUSENLC CC_IHOUSENLC CC_IHOUSECC

Housing investment: Non-constrained and credit constrained hh

0 1 2 3 4 5 6 7 8 9 1 0-0 .2

0 .0

0 .2

0 .4

0 .6

0 .8

1 .0

RIC_WR CC_WR

Real wages

0 1 2 3 4 5 6 7 8 9 1 0-0 .1 5

-0 .1 0

-0 .0 5

0 .0 0

0 .0 5

0 .1 0

0 .1 5

0 .2 0

RIC_INF CC_INF

Inflation

0 1 2 3 4 5 6 7 8 9 1 0-0 .0 5

0 .0 0

0 .0 5

0 .1 0

0 .1 5

0 .2 0

0 .2 5

32

Fiscal multipliers in model with credit-constraints

Table 1 First year GDP effects of fiscal shocks of 1% of GDP

fiscal measures:

Permanent stimulus

Temporary stimulus

(one year)

Temporary with monetary

accommodation (1) Investment subsidy 0.46 1.37 2.19 Government investment 0.84 1.07 1.4 Government consumption 0.36 0.99 1.4 Consumption tax 0.37 0.67 0.99 Government transfers 0.22 0.55 0.78 Labour tax 0.48 0.53 0.68 Corporate profit tax 0.32 0.03 0.05 Note: GDP percentage difference from baseline for global shocks of 1% of (baseline) GDP, assuming long run financing through labour tax increases. (1) unchanged nominal interest rates for 1 year.

33

Spill-oversTable 2 First year GDP effects of fiscal shocks:

Fiscal stimulus in: EU RoW Global Government consumption EU GDP 0.74 0.26 0.99 RoW GDP 0.09 0.96 1.04 Government investment

EU GDP 0.84 0.24 1.07 RoW GDP 0.08 1.04 1.12 Government transfers

EU GDP 0.40 0.15 0.55 RoW GDP 0.05 0.53 0.58 Labour tax

EU GDP 0.41 0.12 0.53 RoW GDP 0.04 0.52 0.56 Consumption tax

EU GDP 0.49 0.18 0.67 RoW GDP

0.06 0.64 0.70

Note: GDP difference from baseline in first year of simulation, for resp. EU acting alone, RoW acting alone and global coordinated expansions. All shocks are credibly temporary for one year and of equal size, 1% of baseline GDP.

34

Fiscal Policy in the current crisis

Temporary fiscal policy measures can be effective to support growth in the current crisis due to

• increase in credit constraints and • monetary policy more likely to be

accommodativeGlobal expansion leads to positive spillovers

(coordination needed to avoid countries taking a free ride)

Design (composition) matters.Need for credible temporary policies (guarantees

that expansion does not become permanent): avoid adverse financial market reaction

35

36

Credibility of temporary fiscal expansions:

Effects of permanent changes in spending and taxes are much smaller, and generally become negative in the long run (agents anticipate future increases in taxes and reduce their consumption and save more)

Smaller multipliers if stimulus is not perceived as temporary but permanent.

Risk premia: unsustainable fiscal strategies may give rise to increase in risk premia (sovereign bonds, (corporate bonds))

Smaller multipliers if stimulus leads to higher borrowing costs for government (and private sector)

Need credible medium-term strategies to deal with increase in debt

37

Figure 4 Credibly temporary vs. permanent shocks:increase government consumption and increase in risk premia

Temp.+mon.acc : 1 year increase gov. cons (1% of GDP) with nominal interest rates unchangedTemp. : 1 year increase government consumption (1% of GDP) Perm. : permanent increase gov. consumption (financed by tax increases)Perm.+sov.rp : permanent increase plus sovereign bond risk premium 100 bp.Perm.+rp : permanent increase plus sov. bond risk premium 100bp plus risk premium 25bp

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

0 1 2 3 4 5 6 7 8 9 10

year

GD

P (

% d

iff.

fro

m b

ase)

temp+mon.acc temp. perm. perm+sov.rp perm.+rp

Higher fiscal multipliers in financial crisis:Effect of credit-constraints and monetary policy

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2008Q4 2009Q4 2010Q4 2011Q4 2012Q4 2013Q4

GC_40 GC_60 GC_60M

-0.1

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2008Q4 2009Q4 2010Q4 2011Q4 2012Q4 2013Q4

TAUL_40 TAUL_60 TAUL_60M

Gov.cons. Labour tax

______ : 40% credit-constrained_ _ _ _ : 60% credit-constrained_._._._ : 60% credit-constrained plus monetary accommodation