Investment and Monetary Policy in the Euro Area

33 Pages Posted: 26 Feb 2003

See all articles by Benoit Mojon

Benoit Mojon

Banque de France

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Philip Vermeulen

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2001

Abstract

Estimates of cyclically-adjusted budget balances, correcting actual government budget balances for business cycle fluctuations, are produced by many institutions. This paper presents an alternative approach for the cyclical adjustment of budget balances. The approach is based on a disaggregated method for the calculation of the cyclical component of the budget balance. In this approach, the effects of changes in the structure of demand and national income on government revenue and expenditure are captured. Cases where the various macroeconomic bases are in different phases of the cycle or exhibit fluctuations of different magnitude are taken into account in this way. The computation of the cyclical components of these macroeconomic bases is based on the Hodrick-Prescott filter and takes into account the latest evidence presented in the literature about the properties of this filter. The paper also presents new estimates of the elasticities of individual budget items with respect to the relevant macroeconomic variables.

Keywords: fiscal policy; government budget; cyclical adjustment; business cycles

JEL Classification: E32, E60

Suggested Citation

Mojon, Benoit and Smets, Frank and Vermeulen, Philip, Investment and Monetary Policy in the Euro Area (October 2001). ECB Working Paper No. 78. Available at SSRN: https://ssrn.com/abstract=356223

Benoit Mojon (Contact Author)

Banque de France ( email )

Paris
France

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Philip Vermeulen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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