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Estimating the effects of coordinated fiscal actions in the euro area

  • Hebous, Shafik
  • Zimmermann, Tom

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
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