This article focuses on macroeconomic impacts and welfare effects of a fiscal consolidation process in a small euro-area economy. Fiscal consolidation is defined as a permanent decline in the ratio of public debt to GDP. The analysis is based on PESSOA, a New Keynesian general equilibrium model...

This paper considers some of the main risks and opportunities currently facing the world economy. Against a baseline forecast of October 2009, it first discusses a number of policy mistakes or policy failures that could lead to even worse outcomes than currently envisaged. It then describes the...

Low interest rates in the United States have recently been accompanied by large fiscal stimulus. However, discussions of monetary policy have neglected this fiscal activism, leading to overestimates of the costs of the zero lower bound and, hence, of the appropriate inflation target. To rectify...

This paper studies low-interest-rate policies from a public finance perspective. Two policy regimes are considered. In the first regime, the central bank is subordinate and its budget is integrated into the fiscal authority's budget constraint. In this case, monetary policy influences the...

This paper explores how discretionary fiscal policies on the revenue side of the government budget have reacted to economic fluctuations in European Union countries. For this purpose, it uses data on legislated revenue changes and structural indicators provided twice per year by national central...

We estimate the real exchange rate impact of shocks to government spending for a panel of member countries of the euro area. Our key finding is that the impact differs across different types of government spending, with shocks to public investment generating larger and more persistent real...

Recent evaluations of the fiscal stimulus packages enacted in 2009 in the United States and Europe such as Cogan et al. (2009) and Cwik and Wieland (2009) suggest that the GDP effects will be modest due to crowding out of private consumption and investment. Corsetti, Meier, and Müller (2009,...

The global recession of 2008–09 has revived interest in the international repercussions of domestic policy choices. This paper focuses on the case of fiscal stimulus, investigating cross-border spillovers from an increase in exhaustive government spending on the basis of a two-country...

This paper uses an estimated DSGE model to analyze the factors behind the buildup of imbalances in the Spanish economy. Shock decompositions suggest that external imbalances have been able to build up mainly due to the reduction in real interest rates and easier access to credit following the...

A key practical challenge for monetary policy is to gauge the extent to which the private sector perceives the central bank’s nominal anchor as transparent and credible. In light of that challenge, this commentary discusses some evidence on the evolution of longer-term inflation expectations...