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Estimating the Effects of Coordinated Fiscal Actions in the Euro Area

Shafik Hebous () and Tom Zimmermann

No 3912, CESifo Working Paper Series from CESifo

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: 2012
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Journal Article: Estimating the effects of coordinated fiscal actions in the euro area (2013) Downloads
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