Macroeconomic Shocks and the Fiscal Stance within the EU: A Panel Regression Analysis

Dybczak, Kamil and Melecky, Martin (2011): Macroeconomic Shocks and the Fiscal Stance within the EU: A Panel Regression Analysis.

Abstract

The recent global financial crisis has had a diverse effect on countries’ fiscal stance, especially throughout the EU. This paper examines the impact of macroeconomic shocks, including those to government revenues and expenditures, on EU countries’ fiscal stance, on aggregate, and within the EU’s sub-regions as defined by the length of countries’ membership in the EU and their level of indebtedness. The fiscal stance is measured by means of the government deficit, and the impact of macroeconomic shocks is examined using impulse responses from a structural vector autoregression (SVAR) model estimated on annual panel data. The analyzed system of macroeconomic variables includes, government revenues and expenditures, GDP growth, CPI inflation, the interest rate, the terms of trade, and the real effective exchange rate. The paper discusses the policy implications and the challenges for the EU and its sub-regions concerning the fiscal policy setting and balanced fiscal stance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic shocks, Fiscal Stance, European Union, Panel Data Analysis, Structural Vector Autoregression Models
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H6 - National Budget, Deficit, and Debt > H68 - Forecasts of Budgets, Deficits, and Debt; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications

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