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Fiscal Policy in an estimated open-economy model for the EURO area

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Author Info
Ratto Marco (European Commission, DG JRC)
Roeger Werner (Eurepean Commission, DG ECFIN)
Veld Jan (European Commission, DG ECFIN)

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Abstract

This paper presents an open economy DSGE model, which is estimated on a euro area data set using Bayesian techniques. It extents current models by allowing for a detailed empirical analysis of fiscal stabilisation policies. Reaction functions for expenditure categories are estimated in order to measure the extent of the fiscal response of various expenditure categories and to determine the lags of fiscal policy. On the revenue side we use the OECD tax elasticities. Our paper has three objectives: On the methodological side we are interested how much the addition of fiscal policy improves the fit of the DSGE model. The economic issues we explore are first, what has been the contribution of fiscal policy to stabilize the euro area economy? And second, what has been the size of fiscal shocks and how much have they increased the volatility of GDP growth and inflation in the euro area

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 43.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:43

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Related research
Keywords: DSGE Models; Fiscal Policy;

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Find related papers by JEL classification:
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November. [Downloadable!] (restricted)
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  2. Michael J. Artis, Luca Onorante, 2006. "The Economic Importance of Fiscal Rules," Economics Working Papers ECO2006/14, European University Institute. [Downloadable!]
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  3. Günter Coenen & Roland Straub, 2005. "Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area," International Finance, Blackwell Publishing, vol. 8(3), pages 435-470, December. [Downloadable!] (restricted)
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  4. Jordi Galí & J. David López Salido & Javier Vallés, 2003. "Understanding the effects of government spending on consumption," Banco de España Working Papers 0321, Banco de España. [Downloadable!]
  5. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November. [Downloadable!] (restricted)
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  6. Perotti, Roberto, 2005. "Estimating the Effects of Fiscal Policy in OECD Countries," CEPR Discussion Papers 4842, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. [Downloadable!] (restricted)
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  8. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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  9. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
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  10. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670. [Downloadable!]
  11. J. Galí & D. López-Salido & J. Vallés, 2003. "Understanding the effects of government spending on consumption," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Ratto, 2008. "Analysing DSGE Models with Global Sensitivity Analysis," Computational Economics, Springer, vol. 31(2), pages 115-139, March. [Downloadable!] (restricted)
  2. Matthew Canzoneri, 2007. "Coordination of Monetary and Fiscal Policy in a Monetary Union: Policy Issues & Analytical Models," Money Macro and Finance (MMF) Research Group Conference 2006 165, Money Macro and Finance Research Group. [Downloadable!]
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