In search of the Euro area fiscal stance

Abstract

This paper investigates the role of …scal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumption, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also …nd that, in spite of their potentially strong e¤ects, …scal policies were substantially muted during the EMU years. This result is con…rmed even for the post 2007 period. In fact …scal policies did not complement the monetary policy stimulus in response to the …nancial crisis. Further, we cannot detect any substantial aggregate e¤ect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth.

Great recession, slow recovery and muted fiscal policies in the US

“…The presence of z t in (1) guarantees that the model has a balanced growth path when productivity is non stationary. 2 In contrast with Leeper et al (2010) and CST (2012, 2013) we abstract from non-separability (complementarity) between private and public goods consumption and stick to the utility function used in SW (2005,2007), characterized by non separability between consumption and labor e¤ort.…”

“…Karras (1994) argues that the correlation between private and public consumption should depend on whether …scal stimulus falls on substitute goods (defense, security, judicial system expenditures) or on goods characterized by 1 The structure of the model is identical to a companion paper where we invetigate the role of …scal policies in the Eurozone (Albonico et al 2016 Each household supplies the bundle of labor services h…”

Disinflation, Inequality, and Welfare in a Tank Model

“…The LAMP hypothesis has been popularized in a number of studies (Albonico, Paccagnini, and Tirelli , ; Ascari, Colciago, and Rossi ; Bilbiie ; Colciago ; Furlanetto, Natvik, and Seneca ; Furlanetto and Seneca ; Galí, Lopez‐Salido, and Vallés Liberal , ; Motta and Tirelli , ). It provides a reasonable approximation to the observed polarization in long‐run wealth holdings: Iacoviello and Pavan () document that 40% of the U.S. population has essentially no assets and no debt.…”

Dealing with Misspecification in DSGE Models: A Survey

“…If the degree of habits is zero ( = 0) and c = 1, Equation (2) reduces to the standard forward looking consumption Euler equation. The disturbance is assumed to follow a …rst-order autoregressive process with an IID-Normal error term: "…”

“…1 The MA(1) term is included to capture the high-frequency ‡uctuations in in ‡ation. 2 The MA(1) term is included to capture the high-frequency ‡uctuations in wages.…”