The macroeconomic impact of the Next Generation EU instrument on the euro area

Krzysztof Bańkowski, Marien Ferdinandusse, Sebastian Hauptmeier, Pascal Jacquinot and Vilém Valenta

No 255, Occasional Paper Series from European Central Bank

Abstract: In response to the economic fallout from the coronavirus (COVID-19) pandemic, the European Council agreed on the Next Generation EU (NGEU) instrument. NGEU allows the European Commission to issue debt to finance grants and loans to EU Member States, with the disbursement of funds intended to be weighted towards the countries most affected by the crisis. This paper assesses the macroeconomic impact on the euro area of different uses of NGEU, using a large dynamic stochastic general equilibrium (DSGE) model of the euro area and global economy (EAGLE) that has been adapted to reflect the modalities of the NGEU instrument. Three uses of NGEU loans and grants are explored: (i) productive public investment, (ii) unproductive government spending, and (iii) replacing or repaying existing sovereign debt. The EAGLE results are cross-checked with a semi-structural model (ECB-BASE) and with the basic model elasticities (BMEs) of the forecasting models in use in the national central banks of the Eurosystem. JEL Classification: C54, E62, E65, F54, F47

Keywords: COVID-19; EMU; euro area; NextGenerationEU; public investment (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-eec and nep-mac
Note: 2648110
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op255~9391447a99.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2021255

Access Statistics for this paper

More papers in Occasional Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().