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Austerity in the Aftermath of the Great Recession

Christopher House (), Christian Proebsting and Linda Tesar ()

No 23147, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine austerity in advanced economies since the Great Recession. Austerity shocks are reductions in government purchases that exceed reduced-form forecasts. Austerity shocks are statistically associated with lower real GDP, lower inflation and higher net exports. We estimate a cross-sectional multiplier of roughly 2. A multi-country DSGE model calibrated to 29 advanced economies generates a multiplier consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially reduced output losses in Europe. Austerity shocks were sufficiently contractionary that debt-to-GDP ratios in some European countries increased as a consequence of endogenous reductions in GDP and tax revenue.

JEL-codes: E00 E62 F41 F44 F45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac, nep-opm and nep-pke
Date: 2017-02
Note: EFG IFM ME
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Citations: View citations in EconPapers (14) Track citations by RSS feed

Published as Christopher L. House & Christian Proebsting & Linda L. Tesar, 2019. "Austerity in the Aftermath of the Great Recession," Journal of Monetary Economics, .

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