Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5067027 | European Economic Review | 2013 | 12 Pages |
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.
⺠We estimate spillover effects of fiscal shocks in the euro area using GVAR techniques. ⺠We compute an area-wide shock as a weighted average of the shocks across all members. ⺠An area-wide fiscal shock is more effective than a similar size domestic shock. ⺠Our finding indicates the importance of coordinated fiscal actions in the euro area.