A sustainable long-run pattern in the relative competitiveness of euro area countries is a key factor for the survivorship of the monetary union. We analyze the issue focussing on unit labor cost dynamics using cointegration analysis for the whole economy and for the manufacturing sector...

We use an overlapping generations model to show that a bail-out is the optimal response to a fiscal crisis when the level of integration in a Monetary Union is high and the departure from Ricardian equivalence is significant. As it may not be optimal expost, the no bail-out rule is not credible...

We estimate the effect of consolidation efforts on investors' perception of government's solvency. To this end, we analyze announcements by Dutch government officials between September 2008 and December 2014 and select those messages that contain relevant new information on the likelihood and...

The Excessive Deficit Procedure (EDP), central to the Stability and Growth Pact, is criticized for both its procyclical effects and – in contrast – a perceived lack of enforcement. To test its actual effects, we construct a real-time database of EDP recommendations and estimate augmented...

We examine whether fiscal rules constrain incumbent governments to use fiscal policy for re-election purposes. Using data on fiscal rules provided by the IMF for a sample of 77 (advanced and developing) countries over the 1984-2015 period, we find that after the Global Financial Crisis political...

Enforcement of European fiscal rules, to a large extent, hinges on the fiscal forecasts prepared by the European Commission (EC). The reliability of these forecasts has received little attention in the literature, despite the fact that i) the forecasts have potentially far-reaching consequences...

How important is the planning horizon of households for the effects of fiscal plans? We address this question through the lens of a New-Keynesian model where households are boundedly rational and plan over a finite number of periods. We show that the planning horizon affects the medium-run...

This paper focuses on the estimation of fiscal response functions for advanced economies and on the performance of alternative specifications of the Generalized Method of Moments (GMM) estimator for the rule's parameters. We first estimate the parameters on simulated data through Monte Carlo...

We analyze fiscal rules within a Monetary Union in the presence of (i) asymmetric information about member states' potential output and, therefore, output gap and (ii) bail-out among member states. In our framework, bail-out lowers the scope for signalling (discrimination) by member states...

To unveil the strategic interaction between the government and the labour union in a unionised economy, a policy-game model is estimated by cointegrated Vector Autoregressive system using Italian quarterly data (1960-2009) on government budget surplus (fiscal efforts), hours not worked...