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Financial and fiscal shocks in the great recession and recovery of the Spanish economy

José Boscá (), Rafael Domenech (), Javier Ferri (), R. Méndez and J.F. Rubio-Ramírez

European Economic Review, 2020, vol. 127, issue C

Abstract: In this paper we develop a new DSGE model for a small open economy in a currency union, estimated with Bayesian methods, which incorporates a banking and a housing supply sector, consumers and entrepreneurs who accumulate debt, a rich structure of fiscal variables and monopolistic competition in products and labor markets. As an example of its capabilities, the model has been estimated for the Spanish economy, which is an interesting example of a booming economy before the Great Recession, and a country that particularly suffered from the negative consequences of the sovereign debt crisis and exhibited a robust recovery until 2019. Our results show the usefulness of DSGE models, conveniently designed and extended to account for the interaction of real and financial variables and other prominent characteristics of modern economies, as part of our toolkit to analyze the empirical evidence.

Keywords: Collateral constraints; Banks; Bank capital; Fiscal policy; Sticky interest rates (search for similar items in EconPapers)
JEL-codes: E30 E32 E43 E51 E52 E62 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Financial and Fiscal Shocks in the Great Recession and Recovery of the Spanish Economy (2018) Downloads
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DOI: 10.1016/j.euroecorev.2020.103469

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