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Two Tales of Adjustment: East Asian Lessons for European Growth

  • Anusha Chari
  • Peter Blair Henry

In 2008, euro area governments instituted fiscal stimulus to counteract the shock of the Global Financial Crisis. In 2010, they changed tack and pursued consolidation. East Asia also implemented stimulus in response to its 1997–98 financial crisis but, unlike Europe, continued fiscal expansion until growth recovered. The baseline difference between the average growth rate of the east Asian countries and the European Periphery/GIIPS prior to their respective crises was 4.21 percentage points. This difference widens to 7.18 percentage points following the European pivot to austerity in region-specific crisis event time. Panel regressions confirm the statistical significance of this 2.97 percentage point increase in the difference-in-difference estimate suggesting that more gradual fiscal consolidation in the GIIPS might have promoted stronger recovery.

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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 14-04.

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Date of creation: 2014
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Handle: RePEc:ste:nystbu:14-04
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  1. Jordà, Òscar & Taylor, Alan M., 2014. "The time for austerity: Estimating the average treatment effect of fiscal policy," SAFE Working Paper Series 79, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
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  7. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, number 8973, 06-2016.
  8. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
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