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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. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 21(47), pages 443-489, 07.
  2. Beetsma, Roel & Giuliodori, Massimo & Klaassen, Franc, 2005. "Trade Spillovers of Fiscal Policy in the European Union: A Panel Analysis," CEPR Discussion Papers 5222, C.E.P.R. Discussion Papers.
  3. de Castro, Francisco & Hernández de Cos, Pablo, 2008. "The economic effects of fiscal policy: The case of Spain," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1005-1028, September.
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  7. Mertens, Karel & Ravn, Morten O., 2009. "Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach," CEPR Discussion Papers 7423, C.E.P.R. Discussion Papers.
  8. Hebous, Shafik, 2009. "The Effects of Discretionary Fiscal Policy on Macroeconomic Aggregates: A Reappraisal," MPRA Paper 23300, University Library of Munich, Germany, revised Jun 2010.
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  14. Lorenzo Forni & Libero Monteforte & Luca Sessa, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 652, Bank of Italy, Economic Research and International Relations Area.
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  18. 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.
  19. Jörn Tenhofen & Guntram B. Wolff, 2010. "Does anticipation of government spending matter? The role of (non-)defense spending," Bonn Econ Discussion Papers, University of Bonn, Germany bgse12_2010, University of Bonn, Germany.
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  21. Andrea Ferrero, 2005. "Fiscal and Monetary Rules for a Currency Union," Macroeconomics, EconWPA 0508020, EconWPA.
  22. Shafik Hebous & Tom Zimmermann, 2013. "Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records," CESifo Working Paper Series 4311, CESifo Group Munich.
  23. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 0877, European Central Bank.
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Cited by:
  1. Gerald Carlino & Robert Inman, 2013. "Local deficits and local jobs: can U.S. statess stabilize their own economies?," Working Papers 13-11, Federal Reserve Bank of Philadelphia.
  2. Shafik Hebous & Tom Zimmermann, 2013. "Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records," CESifo Working Paper Series 4311, CESifo Group Munich.
  3. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Output Spillovers from Fiscal Policy," NBER Working Papers 18578, National Bureau of Economic Research, Inc.
  4. Nickel, Christiane & Tudyka, Andreas, 2013. "Fiscal stimulus in times of high debt: reconsidering multipliers and twin deficits," Working Paper Series 1513, European Central Bank.
  5. 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, vol. 37(11), pages 4599-4614.

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