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Exit Strategies

  • Winkler, Roland C.
  • Angeloni, Ignazio
  • Faia, Ester

We study alternative scenarios for exiting the post-crisis fiscal and monetary accommodation using the model of Angeloni and Faia (2010), that combines a standard DSGE framework with a fragile banking sector, suitably modified and calibrated for the euro area. Credibly announced and fast fiscal consolidations dominate – based on simple criteria – alternative strategies incorporating various degrees of gradualism and surprise. The fiscal adjustment should be based on spending cuts or else be relatively skewed towards consumption taxes. The phasing out of monetary accommodation should be simultaneous or slightly delayed. We also find that, contrary to widespread belief, Basel III may well have an expansionary macroeconomic effect.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis with number 48734.

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Date of creation: 2011
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Handle: RePEc:zbw:vfsc11:48734
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