Fiscal policy in the EU in the crisis: A model-based approach with applications to New EU Member States

Istvan P Szekely, Werner Roeger and Jan in 't Veld
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Werner Roeger: European Commission, Directorate-General Economic and Financial Affairs Budapest Hungary

Society and Economy, 2011, vol. 33, issue 3, 595-618

Abstract: This paper uses a multi-region DSGE model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy stimulus measures in a credit crisis. The paper explores alternative scenarios which differ by the type of budgetary measure, their length, the degree of monetary accommodation and the level of international coordination. In particular we provide estimates for New EU Member States where we take into account two aspects. First, debt denomination in foreign currency and second, higher nominal interest rates, which makes it less likely that the Central Bank is restricted by the zero bound and will consequently not accommodate a fiscal stimulus. We also compare our results to other recent results obtained in the literature on fiscal policy which generally do not consider credit constrained households.

Keywords: fiscal policy; monetary policy; fiscal multiplier; collateral constraint; DSGE modelling (search for similar items in EconPapers)
JEL-codes: E21 E62 F42 H31 H63 (search for similar items in EconPapers)
Date: 2011
Note: The views expressed in this paper are those of the authors and should not be attributed to the European Commission
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