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Estimating the effects of coordinated fiscal actions in the euro area

Shafik Hebous () and Tom Zimmermann

European Economic Review, 2013, vol. 58, issue C, 110-121

Abstract: We estimate spillover effects of a fiscal shock in one member country in the euro area on outputs of the rest of the members, using a global vector autoregression (GVAR) model. We compare the effects of a domestic fiscal shock with those of a similar size area-wide shock expressed as a weighted average of the fiscal shocks across all member countries. According to our estimates, the impact of an area-wide fiscal shock on output of a member country tends to be positive and larger than that of a domestic shock. Since the cost of participating in the area-wide shock is lower than the cost of a similar size domestic shock, our finding indicates the importance of coordinated fiscal actions in the euro area.

Keywords: Fiscal policy coordination; Cross-border spillovers; Open economy macroeconomics; European integration; Global VAR (search for similar items in EconPapers)
JEL-codes: E62 F15 F41 F42 H50 H60 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:58:y:2013:i:c:p:110-121

DOI: 10.1016/j.euroecorev.2012.12.002

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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