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On the Impact of the Global Financial Crisis on the Euro Area

Xiaoli He, Jan Jacobs (), Gerard Kuper () and Jenny Ligthart
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Xiaoli He: University of Groningen

No 17209, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: This paper analyses the impact of the Global Financial Crisis on the Euro area utilizing a simple dynamic macroeconomic model with interaction between monetary policy and fiscal policy. The model consists of an IS curve, a Phillips curve, a term structure relation, a debt accumulation equation and a Taylor monetary policy rule supplemented with a Zero Lower Bound, and a fiscal policy rule. The model is calibrated/estimated for EU-16 countries for the period 1980Q1{2009Q4. The impact of the Global Financial Crisis is studied by means of impulse responses following a combined, prolonged aggregate demand and public debt shock. The simulation mimicking the GFC turns out to work fairly well. However, the required size of the shock is quite large.

Keywords: Global Financial Crisis; euro area; monetary policy; fiscal policy; New Neoclassical Synthesis model; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: C51 C52 E63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-eec, nep-mac, nep-mon and nep-opm
Date: 2013-10-16, Revised 2013-10-16
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Published by the University of Tasmania. Discussion paper 2013-11

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http://eprints.utas.edu.au/17209/1/2013-11_HeJacob ... rt_September2013.pdf

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