In search of the transmission mechanism of fiscal policy in the Euro area

Patrick Fève and Jean-Guillaume Sahuc

No 14-536, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper applies the DSGE-VAR methodology to assess the size of fiscal multipliers in the data and the relative contributions of two transmission mechanisms of government spending shocks, namely hand-to-mouth consumers and Edgeworth complementarity. Econometric experiments show that a DSGE model with Edgeworth complementarity is a better representation of the transmission mechanism of fiscal policy as it yields dynamic responses close to those obtained with the flexible DSGE-VAR model (i.e. an impact output multiplier larger than one and a crowding-in of private consumption). The estimated share of hand-to-mouth consumers is too small to replicate the positive response of private consumption.

Keywords: Fiscal multipliers; hand-to-mouth; Edgeworth complementarity; DSGE-VAR; Euro area; Bayesian econometrics (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2014-11, Revised 2016-03
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area (2017)
Working Paper: In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area (2017)
Working Paper: In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area (2016)
Working Paper: In search of the transmission mechanism of fiscal policy in the Euro area (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:28760

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