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Getting into GEAR: German and the Rest of Euro Area Fiscal Policy During the Crisis

Author

Listed:
  • Stähler, Nikolai
  • Gadatsch, Niklas
  • Hauzenberger, Klemens
Abstract
In this paper, we use the estimated three-region DSGE model GEAR, which pictures Germany, the Euro Area and the Rest of the world and which is used by the Deutsche Bundesbank for policy analysis, to analyze how discretionary fiscal policy in Germany and the rest of EMU affected GDP growth and unemployment during the crisis. Not surprisingly, stimulus programmes positively affected domestic GDP growth rates while consolidation measures had a negative impact. The contribution of fiscal policy on domestic GDP growth was only small, however, amounting to a maximum of 1.6% for Germany and 0.8% for the rest of the Euro Area in terms of annualized quarter-on quarter growth rates. The main driver for the evolution of GDP were rest of the world and risk premia shocks, followed by domestic non-fiscal shocks, amongst them the technology shock being the most important one. Spillovers of fiscal policy shocks are negligibly small, which holds for spillovers of fiscal shocks in Germany to the rest of the Euro Area and vice versa. This latter finding is confirmed by an impulse-response analysis and by calculating the corresponding multipliers. Hence, relating these findings to current discussions, our analysis suggests that domestic fiscal policy has little effects on the other regions' GDP within EMU and can, therefore, contribute only little to solving the imbalances problem.

Suggested Citation

  • Stähler, Nikolai & Gadatsch, Niklas & Hauzenberger, Klemens, 2014. "Getting into GEAR: German and the Rest of Euro Area Fiscal Policy During the Crisis," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100460, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100460
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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