In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area

Patrick Fève and Jean-Guillaume Sahuc

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Abstract: This paper applies the DSGE-VAR methodology to assess the size of fiscal multipliers in the data and the relative contributions of two transmission mechanisms of government spending shocks, namely hand-to-mouth consumers and Edgeworth complementarity. Econometric experiments show that a DSGE model with Edgeworth complementarity is a better representation of the transmission mechanism of fiscal policy as it yields dynamic responses close to those obtained with the flexible DSGE-VAR model (i.e.an impact output multiplier larger than one and a crowding-in of private consumption). The estimated share of hand-to-mouth consumers is too small to replicate the positive response of private consumption.

Date: 2017
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Citations: View citations in EconPapers (9)

Published in Journal of Applied Econometrics, 2017, 32 (3), pp.704-718. ⟨10.1002/jae.2517⟩

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Related works:
Journal Article: In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area (2017)
Working Paper: In Search of the Transmission Mechanism of Fiscal Policy in the Euro Area (2016)
Working Paper: In search of the transmission mechanism of fiscal policy in the Euro area (2016)
Working Paper: In search of the transmission mechanism of fiscal policy in the Euro area (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01612699

DOI: 10.1002/jae.2517

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