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Estimating the Effects of Coordinated Fiscal Actions in the Euro Area

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  • Shafik Hebous
  • Tom Zimmermann

Abstract

We estimate spillover effects of a fiscal shock in one member country in the euro area on outputs of the rest of the members, using a Global Vector Autoregression (GVAR) model. We compare the effects of a domestic fiscal shock with those of a similar size area-wide shock expressed as a weighted average of the fiscal shocks across all member countries. According to our estimates, the impact of an area-wide fiscal shock on output of a member country tends to be positive and larger than that of a domestic shock. Since the cost of participating in the area-wide shock is lower than the cost of a similar size domestic shock, our finding indicates the importance of coordinated fiscal actions in the euro area.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3912.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3912

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Keywords: fiscal policy coordination; cross-border spillovers; open economy macroeconomics; European integration; Global VAR;

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References

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  1. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
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  6. Giordano, Raffaela & Momigliano, Sandro & Neri, Stefano & Perotti, Roberto, 2007. "The effects of fiscal policy in Italy: Evidence from a VAR model," European Journal of Political Economy, Elsevier, Elsevier, vol. 23(3), pages 707-733, September.
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  17. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2008. "The Effects of Public Spending Shocks on Trade Balances and Budget Deficits in the European Union," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(2-3), pages 414-423, 04-05.
  18. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 4(2), pages 1-27, May.
  19. Benjamin Born & Gernot J. Müller, 2009. "Government Spending Shocks in Quarterly and Annual U.S. Time-Series," Bonn Econ Discussion Papers, University of Bonn, Germany bgse16_2009, University of Bonn, Germany.
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  25. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series, European Central Bank 0877, European Central Bank.
  26. Shafik Hebous & Tom Zimmermann, 2013. "Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records," CESifo Working Paper Series 4311, CESifo Group Munich.
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Cited by:
  1. Gagnon, Marie-Hélène & Gimet, Céline, 2013. "The impacts of standard monetary and budgetary policies on liquidity and financial markets: International evidence from the credit freeze crisis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(11), pages 4599-4614.
  2. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, American Economic Association, vol. 103(3), pages 141-46, May.
  3. Shafik Hebous & Tom Zimmermann, 2013. "Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records," CESifo Working Paper Series 4311, CESifo Group Munich.
  4. Gerald Carlino & Robert P. Inman, 2013. "Local Deficits and Local Jobs: Can U.S. States Stabilize Their Own Economies?," NBER Working Papers 18930, National Bureau of Economic Research, Inc.
  5. Nickel, Christiane & Tudyka, Andreas, 2013. "Fiscal stimulus in times of high debt: reconsidering multipliers and twin deficits," Working Paper Series, European Central Bank 1513, European Central Bank.

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