Fiscal shocks

Fiscal shocks

323 years of UK national debt

A fresh dataset for the marketplace value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It implies that the 20th century saw a shift to financing debt by inflation and low bondholder returns, instead of through fiscal surpluses. This column runs on the counterfactual analysis showing that long bonds have already been an expensive method of financing debt, especially after a financial meltdown. Had the federal government issued only three-year bonds since 1914, the amount of debt in 2017 could have been lower by 28% of GDP.

Fiscal shocks in a globalised world

Alan Auerbach, Yuriy Gorodnichenko , 10 May 2015

The impact of fiscal policy on exchange rates is of key interest to policymakers. This column argues that unexpected government spending instantly affects exchange rates. The finding, predicated on daily data reporting of the united states Defence Department, may claim that unexpected government spending has broader macroeconomic effects aswell. The results, however, usually do not hold is low-frequency data are used instead.

Fiscal multipliers and Eurozone consolidation

Sebastian Gechert, Andrew Hughes Hallett, Ansgar Rannenberg , 26 February 2015

The literature on fiscal multipliers has expanded greatly because the outbreak of the Global Crisis. This column reports on a meta-regression analysis of fiscal multipliers collected from a wide group of empirical reduced form models. Multiplier estimates are significantly higher during economic downturns. Spending multipliers exceed tax multipliers, especially during recessions. The authors estimate that the Eurozone’s fiscal consolidation – most significantly transfer cuts – reduced GDP by 4.3% in accordance with the no-consolidation baseline in 2011, increasing to 7.7% in 2013.

Fiscal multipliers in downturns and the consequences of Eurozone consolidation

Sebastian Gechert, Andrew Hughes Hallett, Ansgar Rannenberg , 25 February 2015

The literature on fiscal multipliers has expanded greatly because the outbreak of the Global Crisis. CEPR Policy Insight 79 reports on a meta-regression analysis of fiscal multipliers collected from a wide group of empirical reduced form models. Multiplier estimates are significantly higher during economic downturns. Spending multipliers exceed tax multipliers, especially during recessions. The authors estimate that the Eurozone’s fiscal consolidation – most significantly transfer cuts – reduced GDP by 4.3% in accordance with the no-consolidation baseline in 2011, increasing to 7.7% in 2013.

EZ fiscal shock absorber: Lessons from insurance economics

Daniel Gros , 19 March 2014

Because the onset of the sovereign debt crisis, the argument for something of fiscal transfers to offset idiosyncratic shocks in the Eurozone has gained adherents. This column argues that what the Eurozone really needs isn’t something which offsets all shocks by some small percentage, but something which protects against shocks which are rare, but potentially catastrophic. Something of fiscal insurance with a set deductible would therefore be better a fiscal shock absorber that offsets a particular percentage of most fiscal shocks.

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