Faculty of Economics and Business Administration Publications Database

Estimating the effects of coordinated fiscal actions in the euro area

Selected
Authors:
Zimmermann, Tom
Source:
Volume: 58
Pages: 110 - 121
Month: February
ISSN-Print: 0014-2921
Link External Source: Online Version
Year: 2013
Keywords: Fiscal policy coordination; Cross-border spillovers; Open economy macroeconomics; European integration; Global VAR
Abstract: We estimate spillover effects of a fiscal shock in one member country in the euro area on outputs of the rest of the members, using a Global Vector Autoregression (GVAR) model. We compare the effects of a domestic fiscal shock with those of a similar size area-wide shock expressed as a weighted average of the fiscal shocks across all member countries. According to our estimates, the impact of an area-wide fiscal shock on output of a member country tends to be positive and larger than that of a domestic shock. Since the cost of participating in the area-wide shock is lower than the cost of a similar size domestic shock, our finding indicates the importance of coordinated fiscal actions in the euro area.
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