Fiscal Spillovers in the Euro Area: Letting the Data Speak

By Era Dabla-Norris, Pietro Dallari, Tigran Poghosyan

November 15, 2017

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Era Dabla-Norris, Pietro Dallari, and Tigran Poghosyan. Fiscal Spillovers in the Euro Area: Letting the Data Speak, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We estimate a panel VAR model that captures cross-country, dynamic interlinkages for 10 euro area countries using quarterly data for the period 1999-2016. Our analysis suggests that fiscal spillovers are significant and tend to be larger for countries with close trade and financial links as well, as for fiscal shocks originating from larger countries. The current account appears to be the main channel of transmission, although strong trade integration among countries in the euro area and spillback effects tend to zero-out the net trade impact in some cases. A subsample analysis shows that the effects of fiscal policy have changed over time, with larger estimated domestic multipliers and spillovers between 2011 and 2014.

Subject: Balance of payments, Current account, Expenditure, Financial sector policy and analysis, Fiscal multipliers, Fiscal policy, Spillovers

Keywords: Bayesian Methods, Common currency, Country, Current account, Fiscal multiplier, Fiscal Multipliers, Fiscal policy shock, Fiscal Spillovers, Global, Government spending, Government spending shock, Net effect, Panel VAR, Spillovers, Trade, Trade openness, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/241
Stock No:

WPIEA2017241
ISBN:

9781484328262
ISSN:

1018-5941

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