In search of the Euro area fiscal stance

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Title: In search of the Euro area fiscal stance
Authors: Albonico, Alice
Paccagnini, Alessia
Tirelli, Patrizio
Permanent link: http://hdl.handle.net/10197/7863
Date: Aug-2016
Abstract: This paper investigates the role of fiscal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumptions, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also find that, in spite of their potentially strong effects, fiscal policies were substantially muted during the EMU years. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate effect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Keywords: DSGE;Limited asset market participation;Bayesian estimation;Euro area;Business cycle;Monetary policy;Fiscal policy
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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