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Estimation of the Medium-Term Macroeconomic Impact of the Cyprus Recovery and Resilience Plan

Author

Listed:
  • Chrystalleni Aristidou

    (Central Bank of Cyprus)

  • Aris Avgousti

    (Central Bank of Cyprus)

  • Niki Papadopoulou

    (Central Bank of Cyprus)

Abstract

This paper estimates the medium-term macroeconomic impact of the fscal stimulus of the Cyprus Recovery and Resilience Plan (RRP) under various scenarios, by using the CYMCM, a semi-structural macroeconometric model of the Cyprus economy developed by CBC sta?. Scenarios di?er in their assumptions about the extent to which the expenditure measures included in the RRP are additional to the ones planned or expected prior to the agreement for a recovery plan for Europe. The analysis takes into account the data of the published Cyprus RRP and makes prudent assumptions on the additivity of RRP expenditure measures. In the scenario in which all RRP-related spending is used for additional measures to the ones planned ( full additivity scenario), the simulations show that the expected impact on real GDP level is around 0.71 percent and for HICP in?ation 0.08 percentage points. The expected impact on employment is 0.22 percent, while public debt-to-GDP is expected to decrease by 0.75 percentage points. In the scenario in which spending under the RRP is partially used for additional measures ( partial additivity scenario), which is considered a more realistic scenario in this paper, the simulations show that the expected impact on real GDP level is around 0.58 percent and for in?ation 0.06 percentage points. The impact on employment is 0.18 percent and the reduction in public debt-to-GDP ratio is expected to be around 1.25 percentage points. The results are based only on the fscal stimulus of the Cyprus RRP, as the analysis does not incorporate spillover e?ects of NGEU measures in other EU countries or additional productivity gains due to reforms. Nevertheless, the analysis indicates that implementation of the RRP will have a meaningful impact on the Cyprus economy in the medium-term. Overall, the results of this paper are comparable to the results of other studies.

Suggested Citation

  • Chrystalleni Aristidou & Aris Avgousti & Niki Papadopoulou, 2022. "Estimation of the Medium-Term Macroeconomic Impact of the Cyprus Recovery and Resilience Plan," Working Papers 2022-4, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2022-4
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    References listed on IDEAS

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    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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