A new deliverable on measuring fiscal spillovers has been published:

D1.3: Measuring fiscal spillovers in EMU and beyond: A Global VAR approach (CEPS).

Abstract: This paper identifies and measures fiscal spillovers in the EU countries empirically, using a structurally stable global vector autoregression (GVAR) model. For our purposes, the individual EU countries, as well as the most important international trading partners, are modelled with a special focus on the effects of either single-country or coordinated fiscal shocks such as increases in fiscal spending. Our aim is to look at the sign and the absolute values of fiscal spillovers in a country-wise perspective and at the time profile (impulse response) of the impacts of fiscal shocks. For this purpose, we differentiate between the spillovers of fiscal shocks in specific EMU member countries and the spillovers of “regional” shocks, i.e. area-wide shocks to fiscal policy. Fiscal policy is measured by government expenditure, government revenues or the government budget balance, all as percentages of GDP. Special attention is paid to the question of whether or not spillovers are stronger within the EMU group than within the “Rest of Europe” due to tighter financial or trade links.

New deliverable by NIESR published: Macroprudential tools, transmission and modelling (D4.7).

Abstract: The purpose of this paper is twofold. First, we review the theoretical and empirical literature on macroprudential policies and tools. Second, we test empirically the effectiveness of several macroprudential policies and tools using three datasets from the IMF and BIS that cover up to 19 OECD countries during 2000-2014, thus giving wide coverage of instruments. In addition, our focus on OECD countries gives us access to a wider range of control variables whose omission may lead to excessively favourable results on the impact of macroprudential policies. We find evidence that macroprudential polices are effective at curbing house price and credit growth, albeit some tools are more effective than others. These include, in particular, taxes on financial institutions and strict loan-to-value and debt-to-income ratio limits.

A new deliverable by LUISS has been published: One EMU Fiscal Policy for the EURO (D3.2).

Abstract: We build a Two-Country Open-Economy New-Keynesian DSGE model of a Currency Union to study the effects of fiscal policy coordination, by evaluating the stabilization properties of different fiscal policy scenarios. Our main findings are the following: a) a government spending rule that targets net exports rather than domestic output produces more stable dynamics, b) consolidating government budget constraints across countries and moving tax rates jointly provides greater stabilization than with separate budget constraints and independent tax rate movements, c) taxes on labour income are exponentially more distortionary than taxes on firm sales. These findings point out to possible policy prescriptions for the Eurozone: to coordinate fiscal policies by reducing international demand imbalances, either by stabilizing trade flows across countries or by creating some form of fiscal union or both, while avoiding the excessive use of labour taxes, in favour of sales taxes.

New deliverable by IHS published: Cross-Country Long-Run Spillover Effects and Coordination of Fiscal Policy: a Quantitative Exploration for Europe (D1.6).

Abstract: We develop a multi-country CGE-OLG model with detailed structures for the households and the governments. We then perform simulations to quantify spillovers from policy reforms and exogenous shocks typical of crisis and compare some forms of policy coordination, without being comprehensive. In the standard labor and consumption tax reforms that we consider, we find that spillovers are small and that simultaneous implementation of these fiscal reforms, one example of coordination, is not advantageous. Spillovers from exogenous shocks are significantly larger and area-wide shocks have a larger impact than a shock to a country alone. The type of fiscal policy response to a shock matters. An appropriate coordinated policy response can improve domestic economic circumstances and reduce negative spillovers to other countries. The gains are larger in case of an area-wide exogenous shock, but only to a small extent. The temporary violation of public debt rules can be beneficial for all countries.

Two new deliverables by Iain Begg (LSE) have been published: D6.2: “Fiscal rules in the Member States: principles, practice and implementation” and a concise briefing paper D6.3: Are fiscal rules an effective and suitable means of ensuring fiscal sustainability?

NIESR’s deliverable D2.3: Quantifying fiscal multipliers and CEPS’ deliverable D4.2: The interaction between fiscal and monetary policy – before and after the financial crisis have been published.