Expansionary or restrictive policies in the Eurozone? Dominating trends in the first two decades

Joanna Stawska () and Jorge Reis Mourao
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Joanna Stawska: Department of Finance, University of Lodz, 39 Rewolucji 1905, 90-214Lodz, Poland
Jorge Reis Mourao: Department of Economics & NIPE, University of Minho, Braga, Portugal

Acta Oeconomica, 2021, vol. 71, issue 3, 405-430

Abstract: Our aim is to identify periods of restrictive versus expansionary economic policy in the euro area in the last two decades. We firstly conducted the study for identifying the dominant trend in fiscal policies and then in monetary policies. We studied several fiscal outputs, focusing on the cyclical adjusted primary balance. We also analysed the European long-term and short-term interest rates. The study was conducted for several windows, namely for 3-, 4- and 5-year periods. Additional procedures were conducted for robustness checks, namely the study of structural breaks in the analysed time series as well as a study of them recurring to Markov-Switching Regimes models. For most of the analysed periods and subperiods of the series, we concluded for the presence of expansionary policies either in the fiscal or in monetary European domains. Finally, the results and the analysis of dependencies in the euro area economy favour the evidence that economic authorities in the euro area have sought to coordinate monetary and fiscal policy to stabilise the economy.

Keywords: expansiveness; fiscal policy; monetary policy; policy mix; restrictiveness (search for similar items in EconPapers)
JEL-codes: E02 E4 E52 E62 (search for similar items in EconPapers)
Date: 2021
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