In search of the transmission mechanism of fiscal policy in the Euro area

Patrick Fève and Jean-Guillaume Sahuc

No 840, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: Hand-to-mouth consumers and Edgeworth complementarity between private consumption and public expenditures are two competing mechanisms that were put forward by the literature to investigate the effects of government spending. Using Bayesian prior and posterior analysis and several econometric experiments, we find that a model with Edgeworth complementarity is a better representation for the transmission mechanism of fiscal policy in the euro area. We also show that a small change in the degree of Edgeworth complementarity has a large impact on the estimated share of hand-to-mouth consumers. These findings are robust to a number of perturbations.

Keywords: Fiscal multipliers; DSGE Models; Hand-to-Mouth; Edgeworth Complementarity; Euro Area; Bayesian Econometrics (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-cta, nep-dge, nep-eec and nep-mac
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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 (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)
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:28761

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