No. 1483: Gauging the effects of fiscal stimulus packages in the Euro area, by Günter Coenen, Roland Straub, Mathias Trabandt
(JEL: C11, E32, E62) We seek to quantify the impact on euro area GDP of the European Economic Recovery
Plan (EERP) enacted in response to the financial crisis of 2008-09. To do so, we estimate
an extended version of the ECB’s New Area-Wide Model with a richly specified
fiscal sector. The estimation results point to the existence of important complementarities
between private and government consumption and, to a lesser extent, between
private and public capital. We first examine the implied present-value multipliers for
seven distinct fiscal instruments and show that the estimated complementarities result
in fiscal multipliers larger than one for government consumption and investment. We
highlight the importance of monetary accommodation for these findings. We then show
that the EERP, if implemented as initially enacted, had a sizeable, although short-lived
impact on euro area GDP. Since the EERP comprised both revenue and expenditurebased
fiscal stimulus measures, the total multiplier is below unity.
Go to Source
