Gauging the effects of fiscal stimulus packages in the euro area

Roland Straub, Mathias Trabandt and Günter Coenen

No 1483, Working Paper Series from European Central Bank

Abstract: We seek to quantify the impact on euro area GDP of the European Economic Recovery Plan (EERP) enacted in response to the financial crisis of 2008-09. To do so, we estimate an extended version of the ECB’s New Area-Wide Model with a richly specified fiscal sector. The estimation results point to the existence of important complementarities between private and government consumption and, to a lesser extent, between private and public capital. We first examine the implied present-value multipliers for seven distinct fiscal instruments and show that the estimated complementarities result in fiscal multipliers larger than one for government consumption and investment. We highlight the importance of monetary accommodation for these findings. We then show that the EERP, if implemented as initially enacted, had a sizeable, although short-lived impact on euro area GDP. Since the EERP comprised both revenue and expenditurebased fiscal stimulus measures, the total multiplier is below unity. JEL Classification: C11, E32, E62

Keywords: Bayesian inference; DSGE modelling; euro area; European Economic Recovery Plan; Fiscal multiplier; fiscal policy (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-pbe
Note: 1065946
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Gauging the effects of fiscal stimulus packages in the euro area (2013)
Working Paper: Gauging the effects of fiscal stimulus packages in the Euro area (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20121483

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