Archive for the ‘Fiscal Policy’ Category

The Impact of Government Spending Shocks on The Irish Economy

This is joint work with Philip Lane.

Abstract: We study the short-run effects of shocks to government spending on Ireland’s output and its real exchange rate. We show that the impact of government spending shocks critically depend on the nature of the fiscal innovation. Our main finding is that there are important differences between shocks to public investment and shocks to government consumption. Moreover, within the latter category, shocks to the wage and non-wage components also have dissimilar effects.

This paper is published in The Economic and Social Review 40(4): 407-434. It can be downloaded from here.

The effectiveness of fiscal and monetary stimulus in depressions

This is a VOXEU column together with Miguel Almunia, Barry Eichengreen, Kevin H. O’Rourke and Gisela Rua.

There is one important source of information on the effectiveness of monetary and fiscal stimulus in an environment of near-zero interest rates, dysfunctional banking systems and heightened risk aversion that has not been fully exploited: the 1930s. This column gathers data on growth, budgets and central bank policy rates for 27 countries covering the period 1925-39 and shows that where fiscal policy was tried, it was effective.

Find the rest of this column here.

Fiscal Shocks and The Real Exchange Rate

This is a joint paper with Philip Lane.

Abstract: 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 appreciation than shocks to government consumption. Within the latter category, we also show that the impact of shocks to the wage component of government consumption is larger than for shocks to the non-wage component. Finally, we highlight the different exchange rate responses between this group and a group of countries with floating exchange rates.

This paper can be downloaded from here.