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On the Impact of the Global Financial Crisis on the Euro Area

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Abstract

This paper analyses the impact of the Global Financial Crisis on the Euro area utilizing a simple dynamic macroeconomic model with interaction between monetary policy and fiscal policy. The model consists of an IS curve, a Phillips curve, a term structure relation, a debt accumulation equation and a Taylor monetary policy rule supplemented with a Zero Lower Bound, and a fiscal policy rule. The model is calibrated/estimated for EU-16 countries for the period 1980Q1{2009Q4. The impact of the Global Financial Crisis is studied by means of impulse responses following a combined, prolonged aggregate demand and public debt shock. The simulation mimicking the GFC turns out to work fairly well. However, the required size of the shock is quite large.

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  • He, Xiaoli & Jacobs, Jan P.A.M. & Kuper, Gerard H. & Ligthart, Jenny E., 2013. "On the Impact of the Global Financial Crisis on the Euro Area," Working Papers 17209, University of Tasmania, Tasmanian School of Business and Economics, revised 16 Oct 2013.
    • Handle: RePEc:tas:wpaper:17209
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    More about this item

    Keywords

    Global Financial Crisis; euro area; monetary policy; fiscal policy; New Neoclassical Synthesis model; Zero Lower Bound;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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