What are the Spill-Overs from Fiscal Shocks in Europe? An Empirical Analysis

43 Pages Posted: 21 Jun 2004

See all articles by Massimo Giuliodori

Massimo Giuliodori

University of Amsterdam - Faculty of Economics & Econometrics (FEE); Tinbergen Institute

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Date Written: March 2004

Abstract

We use a Vector Auto Regression (VAR) analysis to explore the (spill-over) effects of fiscal policy shocks in Europe. To enhance comparability with the existing literature, we first analyse the effects of these shocks at the national level. Here, we employ identification based on Choleski decomposition and a structural VAR, both of which lead to the same results. Then, we turn to study the cross-border spill-overs of fiscal shocks via the trade channel. Fiscal expansions in Germany, France and Italy lead to significant increases in imports from a number of European countries. In order to mimic the case of monetary union, we also shut off the effects via the short-term interest rate and the nominal exchange rate and find a slight strengthening on average of the cross-country spill-overs from a fiscal expansion. These results suggest that it may be worthwhile to further investigate the possibility of enhanced fiscal coordination.

Keywords: Fiscal shocks, fiscal policy, monetary policy, spill-overs, impulse responses

JEL Classification: E62, E63, F42

Suggested Citation

Giuliodori, Massimo and Beetsma, Roel M. W. J., What are the Spill-Overs from Fiscal Shocks in Europe? An Empirical Analysis (March 2004). Available at SSRN: https://ssrn.com/abstract=526988 or http://dx.doi.org/10.2139/ssrn.526988

Massimo Giuliodori (Contact Author)

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

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Amsterdam, 1018 WB
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Tinbergen Institute ( email )

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Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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European Commission ( email )

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Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute)

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