Resource title

To react or not?: fiscal policy, volatility and welfare in the EU-3

Resource image

image for OpenScout resource :: To react or not?: fiscal policy, volatility and welfare in the EU-3

Resource description

This paper develops a dynamic stochastic general equilibrium model to examine the quantitative macroeconomic implications of countercyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity which is the particular market failure justifying policy intervention. We subject the model to productivity shocks and use either government consumption or investment to react to the output gap or the public debt-to-output ratio. If the object of fiscal policy is purely to stabilize output or debt volatility, then our results suggest substantial reductions can be obtained, especially with respect to output. In stark contrast, however, a formal general equilibrium welfare assessment of the volatility implications of these alternative instrument/target combinations reveals the welfare gains from active policy, measured as a share of consumption, to be very modest.

Resource author

Jim Malley, Apostolis Philippopoulos, Ulrich Woitek

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25964

Resource license

Adapt according to the presented license agreement and reference the original author.