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Estimating the effects of coordinated fiscal actions in the euro area

Author Info

  • 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
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

References listed on IDEAS
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Cited by:

  1. Gagnon, Marie-Hélène & Gimet, Céline, 2013. "The impacts of standard monetary and budgetary policies on liquidity and financial markets: International evidence from the credit freeze crisis," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4599-4614.
  2. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Output Spillovers from Fiscal Policy," NBER Working Papers 18578, National Bureau of Economic Research, Inc.
  3. Shafik Hebous & Tom Zimmermann, 2013. "Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records," CESifo Working Paper Series 4311, CESifo Group Munich.
  4. Gerald Carlino & Robert P. Inman, 2013. "Local Deficits and Local Jobs: Can U.S. States Stabilize Their Own Economies?," NBER Working Papers 18930, National Bureau of Economic Research, Inc.
  5. Nickel, Christiane & Tudyka, Andreas, 2013. "Fiscal stimulus in times of high debt: reconsidering multipliers and twin deficits," Working Paper Series 1513, European Central Bank.
  6. Virkola, Tuomo, 2014. "Fiscal Federalism in Four Federal Countries," ETLA Reports 38, The Research Institute of the Finnish Economy.

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