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Macroeconomic Shocks and the Fiscal Stance within the EU: A Panel Regression Analysis

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  • Dybczak, Kamil
  • Melecky, Martin

Abstract

The recent global financial crisis has had a diverse effect on countries’ fiscal stance, especially throughout the EU. This paper examines the impact of macroeconomic shocks, including those to government revenues and expenditures, on EU countries’ fiscal stance, on aggregate, and within the EU’s sub-regions as defined by the length of countries’ membership in the EU and their level of indebtedness. The fiscal stance is measured by means of the government deficit, and the impact of macroeconomic shocks is examined using impulse responses from a structural vector autoregression (SVAR) model estimated on annual panel data. The analyzed system of macroeconomic variables includes, government revenues and expenditures, GDP growth, CPI inflation, the interest rate, the terms of trade, and the real effective exchange rate. The paper discusses the policy implications and the challenges for the EU and its sub-regions concerning the fiscal policy setting and balanced fiscal stance.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33684.

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Date of creation: Sep 2011
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Handle: RePEc:pra:mprapa:33684

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Keywords: Macroeconomic shocks; Fiscal Stance; European Union; Panel Data Analysis; Structural Vector Autoregression Models;

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References

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  1. Marco Ratto & Werner Roeger, 2005. "An estimated open-economy model for the EURO area," Computing in Economics and Finance 2005, Society for Computational Economics 84, Society for Computational Economics.
  2. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," CEP Discussion Papers, Centre for Economic Performance, LSE dp1016, Centre for Economic Performance, LSE.
  3. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, Elsevier, vol. 69(1), pages 6-36, June.
  4. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, Elsevier, vol. 63(1), pages 31-58, May.
  5. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1419-1447, November.
  6. Alessandro Turrini, 2008. "Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 323, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  8. Jesús Crespo-Cuaresma & Michael Pfaffermayr & Octavio Fernández Amador & Catherine Keppel, 2011. "Macroeconomic Aspects of European Integration: Fiscal Policy, Trade Integration and the European Business Cycle," FIW Research Reports series, FIW III-004, FIW.
  9. Ratto Marco & Roeger Werner & Veld Jan, 2006. "Fiscal Policy in an estimated open-economy model for the EURO area," Computing in Economics and Finance 2006, Society for Computational Economics 43, Society for Computational Economics.
  10. Melecky, Martin & Raddatz, Claudio, 2011. "How do governments respond after catastrophes ? natural-disaster shocks and the fiscal stance," Policy Research Working Paper Series, The World Bank 5564, The World Bank.
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Cited by:
  1. Aleš Melecký & Martin Melecký, 2012. "The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is the Fiscal Stance of the Czech Republic?," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2012(6), pages 723-742.
  2. Melecky, Ales & Melecky, Martin, 2012. "Vliv makroekonomických šoků na dynamiku vládního dluhu: jak robustní je fiskální pozice České republiky?
    [The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is
    ," MPRA Paper 39761, University Library of Munich, Germany.
  3. Melecky, Ales & Melecky, Martin, 2011. "Analyzing the Impact of Macroeconomic Shocks on Public Debt Dynamics: An Application to the Czech Republic," MPRA Paper 34114, University Library of Munich, Germany.

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