Jump Starting the Euro Area Recovery: Would a Rise in Core Fiscal Spending Help the Periphery? / Olivier Blanchard, Christopher J. Erceg, Jesper Lindé.

Format:

Book

Author/Creator:

Blanchard, Olivier.

Contributor:

National Bureau of Economic Research.

Erceg, Christopher J.

Lindé, Jesper.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21426.

NBER working paper series no. w21426

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Jump Starting the Euro Area Recovery

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We show that a fiscal expansion by the core economies of the euro area would have a large and positive impact on periphery GDP assuming that policy rates remain low for a prolonged period. Under our preferred model specification, an expansion of core government spending equal to one percent of euro area GDP would boost periphery GDP by over 1 percent in a liquidity trap lasting three years, nearly half as large as the effect on core GDP. Accordingly, under a standard ad hoc loss function involving output and inflation gaps, increasing core spending would generate substantial welfare improvements, especially in the periphery. The benefits are considerably smaller under a utility-based welfare measure, reflecting in part that higher net exports play a material role in raising periphery GDP.

Notes:

Print version record

July 2015.