Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU

Luís Martins and Antonio Afonso

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: We provide new insights into the existence of expansionary fiscal consolidations in the Economic and Monetary Union, using annual panel data from 14 European Union countries, over the period of 1970-2013. Different measures were calculated for assessing fiscal consolidations, based on the changes in the cyclically adjusted primary balance. A similar ad-hoc approach was used to compute monetary episodes. Panel estimations for private consumption show that, in some cases, when fiscal consolidations are coupled with monetary expansions, the traditional Keynesian signals are reversed for general government final consumption expenditure, social transfers and taxes. Keynesian effects prevail when fiscal consolidations are not matched by monetary easing. Panel probit estimations suggest that longer consolidations contribute positively to its success, whilst the opposite is the case for revenue-based ones.

JEL-codes: C23 E21 E5 E62 H5 H62 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://www.bportugal.pt/sites/default/files/anexos/papers/wp201602_0.pdf

Related works:
Journal Article: Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU (2016)
Working Paper: Monetary Developments and Expansionary Fiscal Consolidations: Evidence from the EMU (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201602

Access Statistics for this paper

More papers in Working Papers from Banco de Portugal, Economics and Research Department Contact information at EDIRC.
Bibliographic data for series maintained by DEE-NTD ().