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The dynamic effects of monetary policy and government spending shocks on unemployment in the peripheral Euro area countries

Pietro Dallari and Antonio Ribba ()

Economic Modelling, 2020, vol. 85, issue C, 218-232

Abstract: In this paper we study the response of unemployment to monetary policy and government spending shocks in the peripheral Euro-area countries. By applying the structural near-VAR methodology, we jointly model area-wide and national variables. Our main finding is that fiscal multipliers vary across countries and the results are consistent with the prediction of the standard New Keynesian model only in Italy and Greece. Instead, in Ireland, Portugal and Spain increases in government spending are recessionary. Thus we find that Keynesian results of fiscal policy seem to prevail in high public-debt countries, whereas non-Keynesian outcomes seem to characterize high private-debt countries. As for the monetary policy shock, we find that it plays an important role, jointly with the other area-wide shocks, as a long-term driver of national unemployment.

Keywords: Business cycles; Fiscal shocks; Unemployment; Euro area; Near-structural VARs (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2020
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Working Paper: The Dynamic Effects of Monetary Policy and Government Spending Shocks on Unemployment in the Peripheral Euro Area Countries (2019) Downloads
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DOI: 10.1016/j.econmod.2019.05.018

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