Fiscal Policy Multipliers in the EU During the Credit Crisis: A DSGE Analysis
28 Pages Posted: 15 Jan 2012
Date Written: March 25, 2010
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. It is found that an increase in households facing credit constraints and the fact that the zero lower bound on nominal interest rates has become binding both increase the effectiveness of temporary fiscal stimulus measures.
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