News from May 16, 2016
Next week, Jesper Lindé of the Bank of Sweden will be the speaker of the Quantitative Economic Colloquium. He will present his research paper "Jump-Starting the Euro Area Recovery: Would a Rise in Core Fiscal Spending Help the Periphery?" on Thursday, May 26, 5-7 pm at Kaminzimmer (room 202), Boltzmannstraße 20, Berlin-Dahlem.
We show that a fiscal expansion by the core economies of the euro area would have a large and positive impact on periphery GDP assuming that policy rates remain low for a prolonged period. Under our preferred model specification, an expansion of core government spending equal to one percent of euro area GDP would boost periphery GDP around 1 percent in a liquidity trap lasting three years, nearly half as large as the effect on core GDP. Accordingly, under a standard ad hoc loss function involving output and inflation gaps, increasing core spending would generate substantial welfare improvements, especially in the periphery. The benefits are considerably smaller under a utility-based welfare measure, reflecting in part that higher net exports play a material role in raising periphery GDP.
For further information about the Quantitative Economic Colloquium and its program, please click here.