Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model

Coenen, Günter; McAdam, Peter; Straub, Roland

doi:10.1016/j.jedc.2007.09.007

Cited by 207 publications

(253 citation statements)

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“…For moderately autocorrelated spending shocks, this can replicate a crowding in of private consumption, which is in line with evidence reported from a VAR by Gali et al (2007). For lower values of λ as, for instance, proposed by Coenen, McAdam and Straub (2008), our model would still predict a substantial crowding out in private consumption which might be considered counterfactual.…”

Section: Calibration Strategysupporting

confidence: 86%

“…These values reflect coefficients found in Coenen, McAdam and Straub (2008) and Smets andWouters (2003, 2007). For the case of the exogenous fiscal spending shock, the recent literature has not yet found a clear-cut consensus.…”

Section: Calibration Strategysupporting

confidence: 73%

“…This is calibrated somewhere in the middle of the range typically reported in the literature. Coenen, McAdam and Straub (2008) and Smets and Wouters (2004) estimate an average price duration for optimal price setting of ten quarters using full information Baysian estimation techniques, while Del Negro et al (2005) only report an average price duration of three quarters. Microdata for the euro area on price setting report low price durations with a median of around 3.5 quarters (see Alvaraez et al, 2006 for a summary of recent micro-evidence).…”

Section: Calibration Strategymentioning

confidence: 99%

“…While some authors report evidence for highly autocorrelated fiscal expenditure shocks such as Smets and Wouters (2004) with ρ υ = 0.956, Chari et al (2007) attribute only a small role to fiscal expenditure shocks, if at all. Others estimate DSGE models and remain tacit as to whether there is any role for fiscal expenditure shocks by not specifying them (Coenen, McAdam and Straub, 2008). An overview is found in Table 1, while Table 2 provides an overview of the standard deviation of shocks.…”

Section: Calibration Strategymentioning

confidence: 99%

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The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

Mayer

Stähler

2011

Empirica

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Abstract:In a New Keynesian DSGE model with non-Ricardian consumers, we show that automatic stabilization according to a countercyclical spending rule following the idea of the debt brake is well suited both to steer the economy and in terms of welfare. In particular, the adjustment account set up to record public deficits and surpluses serves well to keep the level of government debt stable. However, it is essential to design its feedback to government spending correctly, where discretionary lapses should be corrected faster than lapses due to estimation errors.Keywords: fiscal policy, debt brake, welfare, dsge.JEL classification: E 32, G 61, E 62. Non-technical summaryThe possibilities and limits of fiscal policy regarding economic stabilization have moved center stage lately, certainly also prompted by the current economic downturn. In this context, it is continuously stressed that it is necessary to assure sustainability of public finances and the confidence therein. This can be achieved not least by reliable consolidation after the crisis, and -at least in normal times -by rule-based budget requirements. For example, the International Monetary Fund recently identified a possible positive role for rule-based fiscal policy emphasizing that is must be sustainable and reliable if countercyclical fiscal policy is to unfold its desired effects. While in the 1970s, there seemed to be confidence in somewhat active discretionary fiscal policy, further developments have shown that rule-based actions are needed because of reasons revealed in the political economic literature. This insight is also the basis for the fiscal framework of the European (monetary) union.The focus of the present paper is on the analysis of a rule-based fiscal policy, in particular, the "debt brake", which is expected to be introduced in Germany soon and has already been implemented in Switzerland. The discussion about the introduction of the debt brake has to be seen in the context of European fiscal rules, namely the European Stability and Growth Pact (SGP). As a rule, the SGP demands roughly balanced budgets in structural terms, while letting the automatic stabilizers take effect. The corrective arm of the pact is called on particularly if the 3% deficit ceiling is violated. The 60% debt ceiling also plays a role. As German national budgetary rules have not been consistent with the European framework, and they were largely assessed as being inappropriate with a view to limiting the increase in public debt, this was the hour of birth of the "Förderalismuskommission II" (federalism reform commission), which recently agreed on a proposal for the DB.Similar to the SGP, the debt brake demands (almost) structurally balanced budgets and, thus, ties cyclically adjusted government spending (including interest on outstanding debt) to cyclically adjusted trend revenues raised by the government and, therefore, acts as an automatic stabilizer since the government finances some of its expenditures from deficits in "bad times" while accumulating surpluses...

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Section: Calibration Strategysupporting

confidence: 86%

Section: Calibration Strategysupporting

confidence: 73%

Section: Calibration Strategymentioning

confidence: 99%

Section: Calibration Strategymentioning

confidence: 99%

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The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

Mayer

Stähler

2011

Empirica

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“…It includes Germany, the rest of the euro area (which are both in a monetary union), the US and the rest of the world. EAGLE, based on the NAWM (Coenen et al, 2008b), is also in the vein of the other international models such as GEM (Bayoumi et al, 2004) or SIGMA (Erceg et al, 2006). Thus, the new open economy macroeconomics paradigm constitutes its theoretical background.…”

Section: Eagle and Its Extensionmentioning

confidence: 99%

Can We Prevent Boom-Bust Cycles During Euro Area Accession?

2014

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Covid-19 Shock and Fiscal-Monetary Policy Mix in a Monetary Union

Bartocci

Notarpietro

Pisani

2022

Economic Challenges for Europe After the Pandemic

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This paper evaluates the macroeconomic effects of a monetary and fiscal policy mix implemented in a two-region monetary union in response to the COVID-19 shock. The pandemic is modelled as a mix of recessionary demand and supply shocks affecting both regions simultaneously and symmetrically, under two assumptions: the effective lower bound (ELB) constrains the monetary policy rate; and a fraction of households, labelled 'hand-tomouth' (HTM), consume all their available income in every period. The main results are the following: first, higher lump-sum targeted fiscal transfers to HTM households and public consumption spending in one region, financed by issuing public debt, reduce the recessionary effects both domestically and abroad (via the trade channel). Second, the monetary unionwide recession is mitigated more effectively if both regions implement a fiscal expansion and the central bank limits the increase in long-term rates by purchasing sovereign bonds. Third, fiscal measures are less effective if sovereign bond yields increase relatively more in one region because investors perceive its bonds as risky. Effectiveness can be regained if a supranational fiscal authority issues a safe bond.

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Tax reform and labour-market performance in the euro area: A simulation-based analysis using the New Area-Wide Model

Cited by 207 publications

References 25 publications

The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule

Can We Prevent Boom-Bust Cycles During Euro Area Accession?

Covid-19 Shock and Fiscal-Monetary Policy Mix in a Monetary Union

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