 A Public Investment Stimulus in Surplus Countries and Its Spillovers in the EANational Institute Economic Review, 2017, vol. 239, issue 1, R53-R62 Abstract: The Euro Area recommendations endorsed by the European Council in 2016 called for a differentiation of the fiscal effort by individual Member States, taking into account spillovers across Euro Area countries. This article shows model-based simulations of an increase in public investment in Germany and the Netherlands and their spillovers to the rest of the Euro Area. While spillovers in a monetary union may be small when monetary policy reacts by raising interest rates, when rates are kept constant and the stimulus is accommodated, spillovers can be sizeable. An increase in (productive) spending in Germany and the Netherlands can boost GDP in these countries and also have significant positive spillovers on the rest of EA GDP, while the effects on current accounts are likely to be small. Effects can be even larger when investment is directed to the most productive projects. With low borrowing costs at present, the increase in government debt for surplus countries will be modest, while there could be an improvement in debt ratios in the rest of the Euro Area. Keywords: Fiscal policy; Monetary policy accommodation; Euro Area (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:niesru:v:239:y:2017:i:1:p:r53-r62 Access Statistics for this article More articles in National Institute Economic Review from National Institute of Economic and Social Research Contact information at EDIRC. |
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