The effects of fiscal policy during COVID-19 pandemic in Romania. The results of a DSGE model with financial frictions

Stefania Stancu

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the effectiveness of fiscal policy in macroeconomic stabilization during the COVID-19 health crisis through a Dynamic Stochastic General Equilibrium (DSGE) model, incorporating financial frictions and using Romanian empirical data from 2007-2020. We analyse the impact of a consumption and labour demand shock similar to the ones occurring during the COVID-19 health crisis and explore how discretionary fiscal measures can modulate their effects. The findings suggest that increased government spending during the economic downturns of COVID-19 appears to mitigate some of the adverse effects, particularly on output and investment. While consumption does not seem to benefit significantly from fiscal stimulus, public spending helps to moderate declines in output and bolsters investment, especially in scenarios with a financial accelerator.

Keywords: fiscal policy; DSGE model; COVID-19; financial accelerator (search for similar items in EconPapers)
JEL-codes: E2 E62 H12 H3 (search for similar items in EconPapers)
Date: 2024, Revised 2024
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:121322

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