UZH-Logo

Maintenance Infos

To react or not? Technology shocks, fiscal policy and welfare in the EU-3


Malley, Jim; Philippopoulos, Apostolis; Woitek, Ulrich (2009). To react or not? Technology shocks, fiscal policy and welfare in the EU-3. European Economic Review, 53(6):689-714.

Abstract

This paper develops a DSGE model to examine the quantitative macroeconomic implications of counter-cyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity and consumption habits, as the particular market failures justifying policy intervention. We subject the model to productivity shocks and allow policy instruments to react to the output gap and the debt-to-output ratio. A welfare analysis reveals that the most effective instrument-target combination is to use public consumption to stabilize the output gap. Moreover, welfare gains from counter-cyclical fiscal policy are much stronger in the presence of wage rigidities compared with consumption habits. Finally, since active policy and automatic stabilizers are substitutes, it is possible that relatively undistorted economies may be in need of countercyclical fiscal action due to inadequate automatic stabilizers.

This paper develops a DSGE model to examine the quantitative macroeconomic implications of counter-cyclical fiscal policy for France, Germany and the UK. The model incorporates real wage rigidity and consumption habits, as the particular market failures justifying policy intervention. We subject the model to productivity shocks and allow policy instruments to react to the output gap and the debt-to-output ratio. A welfare analysis reveals that the most effective instrument-target combination is to use public consumption to stabilize the output gap. Moreover, welfare gains from counter-cyclical fiscal policy are much stronger in the presence of wage rigidities compared with consumption habits. Finally, since active policy and automatic stabilizers are substitutes, it is possible that relatively undistorted economies may be in need of countercyclical fiscal action due to inadequate automatic stabilizers.

Citations

6 citations in Web of Science®
8 citations in Scopus®
Google Scholar™

Altmetrics

Downloads

58 downloads since deposited on 07 Jan 2010
26 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
06 Faculty of Arts > Institute of History
Dewey Decimal Classification:900 History
330 Economics
Language:English
Date:2009
Deposited On:07 Jan 2010 14:16
Last Modified:05 Apr 2016 13:43
Publisher:Elsevier
ISSN:0014-2921
Publisher DOI:10.1016/j.euroecorev.2009.01.005
Permanent URL: http://doi.org/10.5167/uzh-26923

Download

[img]
Preview
Content: Accepted Version
Filetype: PDF
Size: 1MB
View at publisher

TrendTerms

TrendTerms displays relevant terms of the abstract of this publication and related documents on a map. The terms and their relations were extracted from ZORA using word statistics. Their timelines are taken from ZORA as well. The bubble size of a term is proportional to the number of documents where the term occurs. Red, orange, yellow and green colors are used for terms that occur in the current document; red indicates high interlinkedness of a term with other terms, orange, yellow and green decreasing interlinkedness. Blue is used for terms that have a relation with the terms in this document, but occur in other documents.
You can navigate and zoom the map. Mouse-hovering a term displays its timeline, clicking it yields the associated documents.

Author Collaborations