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The Dynamic Effects of Monetary Policy and Government Spending Shocks on Unemployment in the Peripheral Euro Area Countries

Pietro Dallari () and Antonio Ribba ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: In this paper we study the response of unemployment to monetary policy and fiscal shocks in the peripheral Euro-area countries. By applying the structural near-VAR methodology, we jointly model Euro area-wide and national variables while preserving the invariance of the set of Euro-area common shocks. Our main finding is that fiscal multipliers vary across countries and the results are consistent with the prediction of the standard New Keynesian model only in Italy and Greece. Instead, the multipliers exhibit a nonKeynesian sign in Ireland, Portugal and Spain. These results seem to be robust to alternative identification strategies. As far as the monetary policy shock is concerned, we find that it plays an important role, jointly with the other Euro-area wide shocks, as a long-term driver of national unemployment.

Keywords: Business Cycles; Fiscal Shocks; Unemployment; Euro area; Near-Structural VARs (search for similar items in EconPapers)
JEL-codes: E32 E62 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
Date: 2019-02
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