Fiscal policy in the semi-structural model ECB-BASE

Krzysztof Bańkowski

No 2802, Working Paper Series from European Central Bank

Abstract: Fiscal policy constitutes a key tool for business cycle stabilisation next to monetary policy. In this context, having a well-suited macroeconomic model for analysing fiscal policy at a central bank is of primary importance. This paper documents the fiscal block of the ECB-BASE, which is a semi–structural model for the euro area developed at the ECB for projections and policy analysis. The set-up of the fiscal block ensures comprehensive coverage of the government sector and tight links to the quarterly fiscal accounts. Thanks to this design, it is possible to simulate the model with a wide range of fiscal shocks, which, as shown in the paper, have distinct propagation mechanisms. Having discussed the set-up and the potency of fiscal policy in the model, this paper also includes the following applications for fiscal policy analysis: counterfactual scenarios with alternative fiscal rules, assessment of fiscal policy conducted in the euro area in the past and stochastic fiscal projections. JEL Classification: C3, C5, E1, E2, E6

Keywords: euro area; fiscal policy; forecasting; semi-structural model; simulations (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-cba and nep-eec
Note: 2648110
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232802

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