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Estimating the effects of coordinated fiscal actions in the euro area

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Listed author(s):
  • Hebous, Shafik
  • Zimmermann, Tom

Abstract

We estimate spillover effects of a fiscal shock in one member country in the euro area on outputs of the rest of the members, using a global vector autoregression (GVAR) model. We compare the effects of a domestic fiscal shock with those of a similar size area-wide shock expressed as a weighted average of the fiscal shocks across all member countries. According to our estimates, the impact of an area-wide fiscal shock on output of a member country tends to be positive and larger than that of a domestic shock. Since the cost of participating in the area-wide shock is lower than the cost of a similar size domestic shock, our finding indicates the importance of coordinated fiscal actions in the euro area.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 58 (2013)
Issue (Month): C ()
Pages: 110-121

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Handle: RePEc:eee:eecrev:v:58:y:2013:i:c:p:110-121
DOI: 10.1016/j.euroecorev.2012.12.002
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

Keywords: Fiscal policy coordination; Cross-border spillovers; Open economy macroeconomics; European integration; Global VAR;

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Find related papers by JEL classification:
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
  • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
  • F15 - International Economics - - Trade - - - Economic Integration
  • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
  • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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