Output spillovers from fiscal policy
Alan J Auerbach, Yuriy Gorodnichenko 10 December 2012
It's tough out there for policymakers seeking to stabilise economies, and shocks from abroad aren't helping. This column argues that for countries hit by recession, fiscal stimulus in another country might significantly stimulate demand back at home, softening the worse effects of the current crisis. The evidence suggests that transnational coordination of fiscal policy may well be more valuable than previously thought.
Policymakers seeking to stabilise the economy face many challenges. A recent set of challenges is shocks from abroad. Such shocks can come from many directions: trade channels as during the Great Trade Collapse of 2009; financial linkages as during the 2008 Global Crisis; and capital flows (Crucini et al. 2008). Foreign fiscal policy is one shock that has been especially prominent during the Eurozone crisis and the US fiscal cliff discussion.
Europe's nations and regions
fiscal stimulus, Greece, Eurozone crisis, fiscal spillovers