The paper subjects seven structural DSGE models, all used heavily by policymaking institutions, to discretionary fiscal stimulus shocks using seven different fiscal instruments, and compares the results to those of two prominent academic DSGE models. There is considerable agreement across models on both the absolute and relative sizes of different types of fiscal multipliers. The size of many multipliers is large, particularly for spending and targeted transfers. Fiscal policy is most effective if it has moderate persistence and if monetary policy is accommodative. Permanently higher spending or deficits imply significantly lower initial multipliers. (JEL E12, E13, E52, E62)

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SUMMARYIn this paper, an empirically stable money demand model for M3 in the euro area is constructed. Starting with a multivariate system, three cointegrating relationships with economic content are found: (i) the spread between the long-term and the short-term nominal interest rates, (ii) the long-term real interest rate, and (iii) a long-run demand for broad money M3. There is evidence that the determinants of M3 money demand are weakly exogenous with respect to the long-run parameters. Hence, following a general-to-specific modelling approach, a parsimonious conditional error-correction model for M3 money demand is derived which can be interpreted economically. For the conditional model, long-run and short-run parameter stability is extensively tested and not rejected.

In 2005 all ECB publications will feature a motif taken from the €50 banknote. WO R K I N G PA P E R S E R I E S N O. 5 1 3 / A U G U S T 2 0 0 5This paper can be downloaded without charge from http://www.ecb.int or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=775424. DOES GOVERNMENT C O N T E N T S Abstract 4Non-technical summary 5

How much did fiscal policy contribute to euro area real GDP growth during the Great Recession? We estimate that discretionary fiscal measures have increased annualized quarterly real GDP growth during the crisis by up to 1.6 percentage points. We obtain our result by using an extended version of the European Central Bank's New AreaWide Model with a rich specification of the fiscal sector. A detailed modeling of the fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal for our result. JEL Classification System: C11, E32, E62Keywords: Fiscal policy, DSGE modelling, Bayesian inference, euro area Non-technical SummaryThe recent financial crisis triggered a large-scale fiscal policy response in the euro area.In the policy debate, it is often argued that expansionary fiscal policies had a substantial impact on economic activity. So it is natural to ask how much did fiscal policy actually contribute to euro area real GDP growth during the crisis?In the wake of the financial crisis, fiscal multipliers have become once again the center of discussions within both academic and policy circles. Most of these discussions aimed at quantifying the size and the sensitivity of fiscal multipliers associated with the launch of large-scale fiscal stimulus packages. In this paper, and in contrast to previous studies, we provide an ex-post quantitative evaluation of the effectiveness of discretionary fiscal policies in influencing the euro area business cycle during the crisis. That is, on the basis of a growth accounting exercise we decompose the dynamics of real GDP growth in the euro area into fiscal and non-fiscal shocks over the period of 2007-10. To this end, we utilize an enhanced version of the ECB's New Area-Wide Model for the euro area with a rich specification of the fiscal sector and employ time series for eight different fiscal variables. Our specification of the fiscal sector aims at balancing the need for a high degree of detail, which is necessary for conducting a meaningful quantitative analysis of the impact of fiscal policy on real GDP, and tractability, which allows us to identify the relevant economic mechanisms.Our model-based estimates suggest that discretionary fiscal policies in the euro area led to an increase in annualized quarterly real GDP growth by up to 1.6 percentage points during the crisis. The detailed modeling of the fiscal sector and the incorporation of as many as eight time series that characterize fiscal policy appear pivotal for our finding.That is, a baseline version of the model that has a rather stylized fiscal sector and that only measures one fiscal time series, namely government consumption, predicts a negligible role of discretionary fiscal policies for real GDP growth during the crisis.