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Output effects of fiscal stimulus in Central and Eastern European Countries

Combes, Jean Louis and Minea, Alexandru and YOGO, Thierry and Mustea, Lavinia (2015): Output effects of fiscal stimulus in Central and Eastern European Countries. Forthcoming in: Post-communist economies

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Abstract

In spite of the rapidly growing research on fiscal multipliers over the recent years, little evidence has been so far accumulated in developing and emerging economies. This paper investigates the nature and the size of fiscal multipliers in Central and Eastern European Countries (CEEC). Unlike most of existing literature, we draw upon a panel vector error correction model, which appropriately captures the common long-term path of CEEC, while allowing for different short-run dynamics, in an integrated setup. Our main results show that the spending multiplier is positive, but low on average. Moreover, its sign,significance and magnitude vary across CEEC. Finally, both impulse and cumulative fiscal multipliers are sensitive to a wide range of CEEC characteristics, including the exchange rate regime, the level of economic development,the fiscal stance, and the openness degree.

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