The macroeconomic effects of the Euro Area's fiscal consolidation 2011-2013: A Simulation-based approach

Ansgar Rannenberg, Christian Schoder and Jan Strasky
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Jan Strasky: Organisation for Economic Co-operation and Development

No 03/RT/15, Research Technical Papers from Central Bank of Ireland

Abstract: We simulate the Euro Area's fiscal consolidation between 2011 and 2013 by employing two DSGE models used by the ECB and the European Commission, respectively. The cumulative multiplier amounts to 0.7 and 1.0 in the baseline, but increases to 1.3 with a reasonably calibrated financial accelerator and a crisis-related increase of the share of liquidity constrained households. In the latter scenario, fiscal consolidation would be largely responsible for the decline in the output gap from 2011-2013. Postponing the fiscal consolidation to a period of unconstrained monetary policy (until after the economic recovery) would have avoided most of these losses.

Keywords: Fiscal policy simulations; fiscal consolidation; fiscal multiplier; Euro Area (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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