Fiscal Policy in the EU in the Crisis: A Model-Based Approach

28 Pages Posted: 30 Mar 2011 Last revised: 21 Jun 2019

See all articles by István P. Székely

István P. Székely

European Commission, DGECFIN; Corvinus University of Budapest

Werner Roeger

European Commission, DGECFIN

Jan in 't Veld

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Date Written: 2011

Abstract

This paper uses a multi region DSGE model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy stimulus measures in a credit crisis. The paper explores alternative scenarios which differ by the type of budgetary measure, its length, the degree of monetary accommodation and the level of international coordination. In particular we provide estimates for New EU Member States where we take into account two aspects. First, debt denomination in foreign currency and second, higher nominal interest rates, which makes it less likely that the Central Bank is restricted by the zero bound and will consequently not accommodate a fiscal stimulus. We also compare our results to other recent results obtained in the literature on fiscal policy which generally do not consider credit constrained households.

Keywords: Fiscal Policy, Monetary Policy, Fiscal Multiplier, Collateral Constraint, DSGE modelling

JEL Classification: E21, E62, F42, H31, H63

Suggested Citation

Szekely, Istvan P. and Roeger, Werner and in 't Veld, Jan, Fiscal Policy in the EU in the Crisis: A Model-Based Approach (2011). CASE Network Studies and Analyses No. 423. Available at SSRN: https://ssrn.com/abstract=1795187 or http://dx.doi.org/10.2139/ssrn.1795187

Istvan P. Szekely (Contact Author)

European Commission, DGECFIN ( email )

CHAR 15/216
Brussels, Bruxelles B-1040
Belgium
+3222958674 (Phone)

Corvinus University of Budapest ( email )

Budapest
Hungary

HOME PAGE: http://www.uni-corvinus.hu/index.php?id=22061

Werner Roeger

European Commission, DGECFIN ( email )

Economic and Financial Affairs
BU1-3/159, 200 Rue de la Loi
B-1049 Brussels
Belgium

Jan In 't Veld

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

CHAR 14/245
Brussels, Bruxelles B-1049
Belgium
(32 2) 2993 577 (Phone)
(32 2) 2957 499 (Fax)

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