EconPapers    
Economics at your fingertips  
 

When Fiscal Consolidation Meets Private Deleveraging

Javier Andrés (), Oscar Arce (), Dominik Thaler and Carlos Thomas ()

Review of Economic Dynamics, 2020, vol. 37, 214-233

Abstract: Inspired by the recent experience in some euro area countries, we analyze the interaction between fiscal consolidation and private deleveraging in a model of a small open economy in a monetary union. The coexistence of long-term private debt and collateral constraints on new loans implies that, following an adverse financial shock, the economy enters a slow private deleveraging process, the duration of which is endogenous to collateral and debt dynamics. In this context, large and/or front-loaded consolidations increase the length and depth of private deleveraging, causing higher relative output losses over the medium run. As a result, such aggressive consolidation strategies entail larger present-value multipliers. Our results thus speak in favor of 'deleveraging-friendly' (smaller/more gradual) consolidations. (Copyright: Elsevier)

Keywords: Fiscal consolidations; Long term private debt; Financial shock (search for similar items in EconPapers)
JEL-codes: E44 E60 E62 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2020.02.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "When Fiscal Consolidation Meets Private Deleveraging" (2020) Downloads
Working Paper: Online Appendix to "When Fiscal Consolidation Meets Private Deleveraging" (2020) Downloads
Working Paper: When fiscal consolidation meets private deleveraging (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:18-471

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2020.02.002

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2022-08-20
Handle: RePEc:red:issued:18-471