IDEAS home Printed from https://ideas.repec.org/p/zbw/bubdps/052015.html
   My bibliography  Save this paper

German and the rest of euro area fiscal policy during the crisis

Author

Listed:
  • Gadatsch, Niklas
  • Hauzenberger, Klemens
  • Stähler, Nikolai

Abstract

We present the estimated large-scale three-region DSGE model GEAR picturing Germany, the Euro Area and the Rest of the world. Compared to existing models of this type, GEAR incorporates a comprehensive fiscal block, involuntary unemployment and a complex international structure. We use the model to evaluate spillovers of fiscal policy, to calculate various present-value multipliers for distinct fiscal instruments, and to assess how discretionary fiscal policy in Germany and the Euro Area affected GDP growth during the global financial crisis. Our analysis suggests that spillovers of fiscal policy shocks in the Euro Area are small. Overall, spending multipliers are higher than revenue-based multipliers and are in line with those found in the literature. We find that, during the crisis, fiscal stimulus packages increased annualized quarter-on-quarter GDP growth substantially, both in Germany and in the rest of the Euro Area. The main drivers of GDP growth in Europe, however, were rest of the world and uncovered interest rate parity shocks, followed by domestic non-fiscal shocks.

Suggested Citation

  • Gadatsch, Niklas & Hauzenberger, Klemens & Stähler, Nikolai, 2015. "German and the rest of euro area fiscal policy during the crisis," Discussion Papers 05/2015, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:052015
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/110275/1/824598814.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gonzalo Fernández-de-Córdoba & Javier Pérez & José Torres, 2012. "Public and private sector wages interactions in a general equilibrium model," Public Choice, Springer, vol. 150(1), pages 309-326, January.
    2. Coenen, Günter & Straub, Roland & Trabandt, Mathias, 2013. "Gauging the effects of fiscal stimulus packages in the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 367-386.
    3. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.
    4. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR;CES;MSH, vol. 26(67), pages 493-549, July.
    5. Warne, Anders & Coenen, Günter & Christoffel, Kai, 2008. "The new area-wide model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series 944, European Central Bank.
    6. Tatiana Kirsanova & Simon Wren‐Lewis, 2012. "Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities," Economic Journal, Royal Economic Society, vol. 122(559), pages 238-264, March.
    7. Afonso, António & Gomes, Pedro, 2014. "Interactions between private and public sector wages," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 97-112.
    8. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
    9. Hebous, Shafik & Zimmermann, Tom, 2013. "Estimating the effects of coordinated fiscal actions in the euro area," European Economic Review, Elsevier, vol. 58(C), pages 110-121.
    10. Andrea Colciago & Tiziano Ropele & V. Anton Muscatelli & Patrizio Tirelli, 2008. "The Role of Fiscal Policy in a Monetary Union: are National Automatic Stabilizers Effective?," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 591-610, August.
    11. Paredes, Joan & Pedregal, Diego J. & Pérez, Javier J., 2009. "A quarterly fiscal database for the euro area based on intra-annual fiscal information," Working Paper Series 1132, European Central Bank.
    12. Felix Reichling & Charles Whalen, 2012. "Review of Estimates of the Frisch Elasticity of Labor Supply: Working Paper 2012-13," Working Papers 43676, Congressional Budget Office.
    13. Gunter Coenen & Roland Straub & Mathias Trabandt, 2012. "Fiscal Policy and the Great Recession in the Euro Area," American Economic Review, American Economic Association, vol. 102(3), pages 71-76, May.
    14. de Walque, Gregory & Lundvall, Henrik & Papageorgiou, Dimitris & Rysanek, Jakub & Kulikov, Dmitry & Júlio, Paulo & Lozej, Matija & Sideris, Dimitris & Maria, José R. & Micallef, Brian & Schmidt, Sebas, 2015. "Comparing fiscal multipliers across models and countries in Europe," Working Paper Series 1760, European Central Bank.
    15. Leeper, Eric M. & Plante, Michael & Traum, Nora, 2010. "Dynamics of fiscal financing in the United States," Journal of Econometrics, Elsevier, vol. 156(2), pages 304-321, June.
    16. Coenen, Günter & McAdam, Peter & Straub, Roland, 2008. "Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2543-2583, August.
    17. Tenhofen Jörn & Wolff Guntram B. & Heppke-Falk Kirsten H., 2010. "The Macroeconomic Effects of Exogenous Fiscal Policy Shocks in Germany: A Disaggregated SVAR Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(3), pages 328-355, June.
    18. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    19. Pytlarczyk, Ernest, 2005. "An estimated DSGE model for the German economy within the euro area," Discussion Paper Series 1: Economic Studies 2005,33, Deutsche Bundesbank.
    20. Rabanal, Pau & Tuesta, Vicente, 2010. "Euro-dollar real exchange rate dynamics in an estimated two-country model: An assessment," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 780-797, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michaelis, Henrike & Elstner, Steffen & Schmidt, Christoph M. & Bofinger, Peter & Feld, Lars P. & Schnabel, Isabel & Wieland, Volker, 2015. "Keine Notwendigkeit einer Reform des Gesetzes zur Förderung der Stabilität und des Wachstums der Wirtschaft," Working Papers 02/2015, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    2. Gadatsch, Niklas & Hauzenberger, Klemens & Stähler, Nikolai, 2016. "Fiscal policy during the crisis: A look on Germany and the Euro area with GEAR," Economic Modelling, Elsevier, vol. 52(PB), pages 997-1016.
    3. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    4. Bańbura, Marta & Albani, Maria & Ambrocio, Gene & Bursian, Dirk & Buss, Ginters & de Winter, Jasper & Gavura, Miroslav & Giordano, Claire & Júlio, Paulo & Le Roux, Julien & Lozej, Matija & Malthe-Thag, 2018. "Business investment in EU countries," Occasional Paper Series 215, European Central Bank.

    More about this item

    Keywords

    Fiscal Policy; Unemployment; DSGE modeling; Bayesian estimation;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bubdps:052015. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: http://edirc.repec.org/data/dbbgvde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.