Estimating the Effects of Coordinated Fiscal Actions in the Euro Area

27 Pages Posted: 3 Sep 2012

See all articles by Shafik Hebous

Shafik Hebous

International Monetary Fund

Tom Zimmermann

QuantCo, Inc.; University of Cologne

Date Written: August 31, 2012

Abstract

We estimate spillover effects of a fiscal shock in one member country in the euro area on outputs of the rest of the members, using a Global Vector Autoregression (GVAR) model. We compare the effects of a domestic fiscal shock with those of a similar size area-wide shock expressed as a weighted average of the fiscal shocks across all member countries. According to our estimates, the impact of an area-wide fiscal shock on output of a member country tends to be positive and larger than that of a domestic shock. Since the cost of participating in the area-wide shock is lower than the cost of a similar size domestic shock, our finding indicates the importance of coordinated fiscal actions in the euro area.

Keywords: fiscal policy coordination, cross-border spillovers, open economy macroeconomics, European integration, Global VAR

JEL Classification: E620, F410, F420, F150, H500, H600

Suggested Citation

Hebous, Shafik and Zimmermann, Tom, Estimating the Effects of Coordinated Fiscal Actions in the Euro Area (August 31, 2012). CESifo Working Paper Series No. 3912. Available at SSRN: https://ssrn.com/abstract=2140684

Shafik Hebous (Contact Author)

International Monetary Fund ( email )

Washington, DC
United States

Tom Zimmermann

QuantCo, Inc. ( email )

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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