Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment

Abstract

Non-technical summary 1 Introduction 2 The data 3 The (S)VAR model 3.1 Specifi cation 3.2 Identifi cation strategy 3.3 Possible weaknesses of the SVAR approach to model fi scal policy shocks 4 The effects of government spending and tax shocks 4.1 Interpreting the fi scal shocks 4.2 The baseline VAR 4.3 Financial and fi scal stress and the impact of fi scal policy 4.4 Responses of private consumption and investment to fi scal shocks 4.5 The effects of different expenditure and net-tax components 4.6 Robustness checks 5 Conclusions Appendix References European Central Bank Working Paper Series CONTENTS 4 ECB Working Paper Series No 1133

Government spending and credit market: Evidence from Italian (NUTS 3) provinces

“…In Europe, the link between fiscal policy and interest rates has not been extensively studied, unlike in the US (Faini, 2006). Some authors have focused on the impact of fiscal policy on government spreads or sovereign bond interest rates, finding that a positive fiscal shock leads to an increase in real sovereign interest rates (Afonso & Strauch, 2003; Bernoth et al, 2003; Burriel et al, 2009; Codogno et al, 2003). As for Italy, to the best of our knowledge there are no specific studies that aim at estimating the impact of fiscal policy on interest rates and credit markets and the only exception are studies including interest rates in a VAR to estimate the effects of fiscal policy on the real economic activity.…”