Article ID Journal Published Year Pages File Type
5067027 European Economic Review 2013 12 Pages PDF
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.

► We estimate spillover effects of fiscal shocks in the euro area using GVAR techniques. ► We compute an area-wide shock as a weighted average of the shocks across all members. ► An area-wide fiscal shock is more effective than a similar size domestic shock. ► Our finding indicates the importance of coordinated fiscal actions in the euro area.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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