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On the impact of the global financial crisis on the euro area

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  • Kuper, Gerard
  • Jacobs, Jan
  • He, Xiaoli
  • Ligthart, Jenny

    (Groningen University)

Abstract

This paper analyses the impact of the Global Financial Crisis on the Euro area utilizing a simple dynamic macroeconomic model with interaction between monetary policy and fiscal policy. The model consists of an IS curve, a Phillips curve, a term structure relation, a debt accumulation equation and a Taylor monetary policy rule supplemented with a Zero Lower Bound, and a fiscal policy rule. The model is alibrated/estimated for EU-16 countries for the period 1980Q1-2009Q4. The impact of the Global Financial Crisis is studied by means of impulse responses following a combined, prolonged aggregate demand and public debt shock. The simulation mimicking the GFC turns out to work fairly well. However, the required size of the shock is quite large.

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File URL: http://irs.ub.rug.nl/ppn/364147032
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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 13011-EEF.

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Date of creation: 2013
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Handle: RePEc:dgr:rugsom:13011-eef

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  1. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  2. Shahrokhi, Manuchehr, 2011. "The Global Financial Crises of 2007–2010 and the future of capitalism," Global Finance Journal, Elsevier, vol. 22(3), pages 193-210.
  3. Berardi, Andrea, 2009. "Term Structure, Inflation, and Real Activity," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 44(04), pages 987-1011, August.
  4. Joan Paredes & Diego J. Pedregal & Javier J. Pérez, 2009. "A quarterly fiscal database for the euro area based on intra-annual fiscal information," Banco de Espa�a Working Papers 0935, Banco de Espa�a.
  5. Glenn D. Rudebusch & Tao Wu, 2003. "A macro-finance model of the term structure, monetary policy, and the economy," Working Paper Series, Federal Reserve Bank of San Francisco 2003-17, Federal Reserve Bank of San Francisco.
  6. Tatiana Kirsanova & Sven Jari Stehn & David Vines, 2005. "The Interactions between Fiscal Policy and Monetary Policy," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 21(4), pages 532-564, Winter.
  7. Ansgar Belke & Jens Klose, 2012. "Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound: Evidence for the ECB and the Fed," Discussion Papers of DIW Berlin 1218, DIW Berlin, German Institute for Economic Research.
  8. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 11-26, Fall.
  9. Bracke, Thierry & Fidora, Michael, 2012. "The macro-financial factors behind the crisis: Global liquidity glut or global savings glut?," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 23(2), pages 185-202.
  10. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, Elsevier, vol. 41(7), pages 1375-1401, July.
  11. Bean, Charles, 1998. "The New UK Monetary Arrangements: A View from the Literature," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(451), pages 1795-1809, November.
  12. Stefan Gerlach & John Lewis, 2010. "The Zero Lower Bound, ECB Interest Rate Policy and the Financial Crisis," DNB Working Papers, Netherlands Central Bank, Research Department 254, Netherlands Central Bank, Research Department.
  13. Moshirian, Fariborz, 2011. "The global financial crisis and the evolution of markets, institutions and regulation," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 502-511, March.
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