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On the impact of the global financial crisis on the euro area

Xiaoli He, Jan Jacobs (), Gerard Kuper () and Jenny Ligthart

No 13011-EEF, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: This paper analyses the impact of the Global Financial Crisis on the Euro area utilizing a simple dynamic macroeconomic model with interaction between monetary policy and fiscal policy. The model consists of an IS curve, a Phillips curve, a term structure relation, a debt accumulation equation and a Taylor monetary policy rule supplemented with a Zero Lower Bound, and a fiscal policy rule. The model is alibrated/estimated for EU-16 countries for the period 1980Q1-2009Q4. The impact of the Global Financial Crisis is studied by means of impulse responses following a combined, prolonged aggregate demand and public debt shock. The simulation mimicking the GFC turns out to work fairly well. However, the required size of the shock is quite large.

Date: 2013
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