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Thomas Faria
- 1 July 2022
- WORKING PAPER SERIES - No. 2676Details
- Abstract
- Since most macroeconomic data are revised after the initial release both researchers andpolicy-makers have no choice rather than recognising and understanding the revisions. Thispaper analyses revisions to the fiscal data in the euro area, also by contrasting them with the’better-understood’ macro revisions. Concretely, the study verifies whether fiscal revisionsfulfil requirements to treat them as well-behaved. To this end, we construct a fiscal quarterlyreal-time dataset, which contains quarterly releases of Government Finance Statistics andwhich is supplemented by macro variables from Main National Accounts. Fiscal revisionsdo not satisfy desirable properties expected from well-behaved revisions. In particular, theytend to have a positive bias, they exhibit a big dispersion and they are largely predictable.Also, they are similar to macro revisions, in particular since 2014, which contradicts theoften heard view about fiscal data being subject to particularly large revisions.
- JEL Code
- C80 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→General
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
- 6 December 2021
- WORKING PAPER SERIES - No. 2623Details
- Abstract
- This paper attempts to gauge the effects of various fiscal and monetary policy rules on macroeconomic outcomes in the euro area. It consists of two major parts – a historical assessment and an assessment based on an extended scenario until 2030 – and it builds on the ECB-BASE –a semistructural model for the euro area. The historical analysis (until end-2019, `pre-pandemic´) demonstrates that a consistently countercyclical fiscal policy could have created a fiscal buffer in good economic times and it would have been able to eliminate a large portion of the second downturn in the euro area. In turn, the post-pandemic simulations until 2030 reveal that certain combinations of policy rules can be particularly powerful in reaching favourable macroeconomic outcomes (i.e. recovering pandemic output losses and bringing inflation close to the ECB target). These consist of expansionary-for-longer fiscal policy, which maintains support for longer than usually prescribed, and lower-for-longer monetary policy, which keeps the rates lower for longer than stipulated by a standard reaction function of a central bank. Moreover, we demonstrate that in the current macroeconomic situation, fiscal and monetary policies reinforce each other and mutually create space for each other. This provides a strong case for coordination of the two policies in this situation.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
- 21 September 2021
- OCCASIONAL PAPER SERIES - No. 273Details
- Abstract
- The last review of the ECB’s monetary policy strategy in 2003 followed a period of predominantly upside risks to price stability. Experience following the 2008 financial crisis has focused renewed attention on the question of how monetary and fiscal policy should best interact, in particular in an environment of structurally low interest rates and persistent downside risks to price stability. This debate has been further intensified by the economic impact of the coronavirus (COVID-19) pandemic. In the euro area, the unique architecture of a monetary union consisting of sovereign Member States, with cross-country heterogeneities and weaknesses in its overall construction, poses important challenges. Against this background, this report revisits monetary-fiscal policy interactions in the euro area from a monetary policy perspective and with a focus on the ramifications for price stability and maintaining central bank independence and credibility. The report consists of three parts. The first chapter presents a conceptual framework for thinking about monetary-fiscal policy interactions, thereby setting the stage for a discussion of specifically euro area aspects and challenges in subsequent parts of the report. In particular, it reviews the main ingredients of the pre-global financial crisis consensus on monetary-fiscal policy interactions and addresses significant new insights and refinements which have gained prominence since 2003. In doing so, the chapter distinguishes between general conceptual aspects – i.e. those aspects that pertain to an environment characterised by a single central bank and a single fiscal authority and those aspects that pertain to an environment characterised by a single central bank and many fiscal authorities (a multi-country monetary union). ...
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance