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Fiscal policy during the crisis: A look on Germany and the Euro area with GEAR

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  • Gadatsch, Niklas
  • Hauzenberger, Klemens
  • Stähler, Nikolai

Abstract

What were the effects of discretionary fiscal policy in Germany and the Euro area during the global financial crisis? Were fiscal spillovers important? To address questions like these we incorporate a comprehensive fiscal block into a standard New Keynesian model along with involuntary unemployment and three regions, of which two form a monetary union. We dub our model GEAR (Germany, the Euro Area, and the Rest of the World) and estimate it on data which include, among the key macroeconomic aggregates, a large set of fiscal variables. Our main results show, first, a slightly positive cumulated effect on German GDP during the recessionary years, while fiscal policy measures were more or less neutral in the Euro area (as aggregate without Germany). In the aftermath, until the end of 2010, these cumulated effects had a sizeable negative contribution to GDP in both regions. Second, we find small or even negative fiscal spillovers between Germany and the Euro area.

Suggested Citation

  • Gadatsch, Niklas & Hauzenberger, Klemens & Stähler, Nikolai, 2016. "Fiscal policy during the crisis: A look on Germany and the Euro area with GEAR," Economic Modelling, Elsevier, vol. 52(PB), pages 997-1016.
  • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pb:p:997-1016
    DOI: 10.1016/j.econmod.2015.10.038
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    Cited by:

    1. Albonico, Alice & Calès, Ludovic & Cardani, Roberta & Croitorov, Olga & Ferroni, Filippo & Giovannini, Massimo & Hohberger, Stefan & Pataracchia, Beatrice & Pericoli, Filippo & Raciborski, Rafal & Rat, 2017. "The Global Multi-Country Model (GM): an Estimated DSGE Model for the Euro Area Countries," Working Papers 2017-10, Joint Research Centre, European Commission (Ispra site).
    2. repec:bla:scotjp:v:66:y:2019:i:1:p:54-93 is not listed on IDEAS
    3. Gadatsch, Niklas & Stähler, Nikolai & Weigert, Benjamin, 2016. "German labor market and fiscal reforms 1999–2008: Can they be blamed for intra-euro area imbalances?," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 307-324.
    4. Bielecki, Marcin & Stähler, Nikolai, 2018. "Labor tax reductions in Europe: The role of property taxation," Discussion Papers 30/2018, Deutsche Bundesbank.
    5. Gadatsch, Niklas & Hollmayr, Josef & Stähler, Nikolai, 2016. "Thoughts on a fiscal union in EMU," Discussion Papers 40/2016, Deutsche Bundesbank.
    6. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    7. Ansgar H. Belke & Thomas U. Osowski, 2019. "Measuring fiscal spillovers in EMU and beyond: A Global VAR approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 54-93, February.
    8. Attinasi, Maria-Grazia & Prammer, Doris & Stähler, Nikolai & Tasso, Martino & Van Parys, Stefan, 2016. "Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries," Discussion Papers 26/2016, Deutsche Bundesbank.

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