Fiscal policy and the Great Recession in the Euro Area

15 Pages Posted: 16 Apr 2012

See all articles by Günter Coenen

Günter Coenen

European Central Bank (ECB)

Roland Straub

European Central Bank (ECB)

Mathias Trabandt

Goethe University in Frankfurt

Date Written: March 22, 2012

Abstract

How much did fiscal policy contribute to euro area real GDP growth during the Great Recession? We estimate that discretionary fiscal measures have increased annualized quarterly real GDP growth during the crisis by up to 1.6 percentage points. We obtain our result by using an extended version of the European Central Bank’s New Area-Wide Model with a rich specification of the fiscal sector. A detailed modeling of the fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal for our result.

Keywords: fiscal policy, DSGE modeling, Bayesian inference, Euro area

JEL Classification: C11, E32, E62

Suggested Citation

Coenen, Günter and Straub, Roland and Trabandt, Mathias, Fiscal policy and the Great Recession in the Euro Area (March 22, 2012). ECB Working Paper No. 1429, Available at SSRN: https://ssrn.com/abstract=2027446 or http://dx.doi.org/10.2139/ssrn.2027446

Günter Coenen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7887 (Phone)
+49 69 1344 6575 (Fax)

Roland Straub

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mathias Trabandt

Goethe University in Frankfurt ( email )

Germany

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