Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Empirical studies support the hysteresis hypothesis that recessions have a permanent e¤ect on the level of output. We analyze the implications of hysteresis for …scal policy in a DSGE model. We assume a simple learning-by-doing mechanism where demand-driven changes in employment can a¤ect the level of productivity permanently, leading to hysteresis in output. We show that the …scal output multiplier is much larger in the presence of hysteresis and that the welfare multiplier of …scal policy-the consumption equivalent change in welfare for one dollar change in public spending-is positive (negative) in the presence (absence) of hysteresis. The main bene…t of accommodative …scal policy in the presence of hysteresis is to diminish the damage of a recession to the long-term level of productivity and, thus, output. Terms of use: Documents in

Between 1999 and the onset of the economic crisis in 2008 real exchange rates in Greece, Ireland, Italy, Portugal and Spain appreciated relative to the rest of the euro area. This divergence in competitiveness was reected in the emergence of current account imbalances. Given that exchange rate devaluations are no longer available in a monetary union, one potential way to address such imbalances is through a scal devaluation. We use a DSGE model calibrated to the euro area to investigate the impact of a scal devaluation, modeled as a revenue-neutral shift from employers' social contributions to the Value Added Tax. We nd that a scal devaluation carried out in`Southern European countries' has a strong positive eect on output, but a mild eect on the trade balance of these countries. In addition, the negative eect on`Central-Northern countries' output is weak.

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We analyze the welfare multipliers of public spending (the consumption equivalent change in welfare for one dollar change in public spending) in a DSGE model. The welfare multipliers of public infrastructure investment are positive if infrastructure is sufficiently effective. When the medium-term output multipliers are consistent with the empirical estimates (1-1.4), the welfare multiplier is 0.8. That is, a dollar spent by the government for investment raises domestic welfare by equivalent of 0.8 dollars of private consumption. This suggests that the welfare gains of public infrastructure investment, if chosen wisely, may be substantial.

Between 1999 and the onset of the economic crisis in 2008 real exchange rates in Greece, Ireland, Italy, Portugal and Spain appreciated relative to the rest of the euro area. This divergence in competitiveness was reected in the emergence of current account imbalances. Given that exchange rate devaluations are no longer available in a monetary union, one potential way to address such imbalances is through a scal devaluation. We use a DSGE model calibrated to the euro area to investigate the impact of a scal devaluation, modeled as a revenue-neutral shift from employers' social contributions to the Value Added Tax. We nd that a scal devaluation carried out in`Southern European countries' has a strong positive eect on output, but a mild eect on the trade balance of these countries. In addition, the negative eect on`Central-Northern countries' output is weak.