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How Important are Automatic Stabilisers in Europe? A Stochastic Simulation Assessment

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Ray Barrell ()
Álvaro M. Pina

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Abstract

In this paper we formalize budgetary stabilisers as a set of simple policy rules, and assess their operation in an uncertain environment by performing stochastic simulations in a forward-looking multi-country macroeconometric model, NiGEM, comprising individual blocks for 10 Euroland economies. Automatic stabilisers make output volatility decrease by 11 per cent for Euroland as a whole - less than in previous studies, as these have overemphasised demand shocks. We also find that, provided countries comply with their announced fiscal consolidation programmes, built-in stabilisers and the Stability and Growth Pact are broadly compatible.

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Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 196.

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Date of creation: Mar 2002
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Handle: RePEc:nsr:niesrd:196

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  1. Maria Silgoner & Jesus Crespo Cuaresma & Gerhard Reitschuler, 2004. "The fiscal smile - on the effectiveness and limits of fiscal stabilizers," Money Macro and Finance (MMF) Research Group Conference 2003 87, Money Macro and Finance Research Group. [Downloadable!]
  2. Jakob de Haan & Helge Berger & David-Jan Jansen, 2003. "The End of the Stability and Growth Pact?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  3. Javier Andrés & Rafael Doménech, 2006. "Fiscal Rules and Macroeconomic Stability," Hacienda Pública Española, IEF, vol. 176(1), pages 9-41, April. [Downloadable!]
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  4. Peter Sinclair, 2004. "Can menu costs justify inflation? Or, might positive inflation targets be right after all?," Money Macro and Finance (MMF) Research Group Conference 2003 88, Money Macro and Finance Research Group. [Downloadable!]
  5. Jerome Creel & Francesco Saraceno, 2008. "Automatic Stabilisation, Discretionary Policy and the Stability Pac," Documents de Travail de l'OFCE 2008-15, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  6. Maria Antoinette Silgoner & Gerhard Reitschuler & Jesús Crespo-Cuaresma, 2003. "The Fiscal Smile: The Effectiveness and Limits of Fiscal Stabilizers," IMF Working Papers 03/182, International Monetary Fund. [Downloadable!]
  7. Jaakko Kiander & Matti Virén, 2000. "Do automatic stabilisers take care of asymmetric shocks in the euro area?," VATT Discussion Papers 234, Government Institute for Economic Research (VATT). [Downloadable!]
  8. Gábor Orbán & György Szapáry, 2004. "The Stability and Growth Pact from the Perspective Of the New Member States," William Davidson Institute Working Papers Series 2004-709, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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