Despite intense calls for safeguarding public investment in Europe, public investment expenditure, when measured in relation to GDP, has steadily fallen in the last three decades, evoking fears that economic activity may be correspondingly negatively affected. At the same time, however, public...

This paper looks at theoretical and empirical issues associated with the operation of fiscal stabilizers within an economy. It argues that such stabilizers operate most effectively at a national, rather than local, level. As differing cycles across regions tend to offset each other for the...

The success of European Economic and Monetary Union (EMU) will depend on the stability of the euro. The monetary policy framework is yet to be decided, but is likely to involve either money or inflation targeting. Stochastic simulations compare the outcomes for major macroeconomic and financial...

In this paper, we revisit the effects of government spending shocks on private consumption within an estimated New-Keynesian DSGE model of the euro area featuring non-Ricardian households. Employing Bayesian inference methods, we show that the presence of non- Ricardian households is in general...

The paper considers the issue of whether a supranational fiscal policy in Europe is needed, and, if so, what responsibilities it should undertake. The literature on endogenous growth and the principle of subsidiarity suggest that such a policy should be limited to externalities or economies of...

The economic effects of German unification are first discussed in the context of a global saving/investment model. Next, simulations of MULTIMOD are presented, suggesting for the FRG an initial increase in long-term real interest rates equal to 3/4 of a percentage point, increased output, a...

Standard models of policy credibility, defined as the expectation that an announced policy will be carried out, emphasize the preferences of the policymaker, and the role of tough policies in signalling toughness and raising credibility. Whether a policy is carried out, however, will also...

Evaluations of European monetary integration using model simulations have given conflicting results, and the paper attempts to elucidate the reasons for the differences. Several features stand out: how to model realignments; how monetary policy is set for individual countries or for Europe; and...

Stage 2 of monetary union in the Europe is to involve greater monetary cooperation; the paper examines the case for using the M3 money supply aggregated across “core ERM” countries- -those with low inflation and absence of realignments- -as a vehicle for that cooperation. First, the...

In recent years, New Keynesian dynamic stochastic general equilibrium (NK DSGE) models have become increasingly popular in the academic literature and in policy analysis. However, the success of these models in reproducing the dynamic behavior of an economy following structural shocks is still...