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Estimation of a fiscal policy rule for EMU countries (1984-2005)

Author

Listed:
  • Agustin Garcia
  • M. J. Arroyo
  • R. Minguez
  • J. Uxo

Abstract

The primary objective of this article is to estimate a fiscal policy rule for each of the EMU member States from 1984 to 2005 in order to know if there has been a systematic response of the cyclically adjusted primary balance to output gap and debt level variations. Also, we aim to discover whether the change in the fiscal framework, which took place after 1992 has had a substantial impact on the fiscal policy applied. The principal novelty is that the estimation is performed simultaneously by means of a seemingly unrelated regression estimator model. We are thus able to obtain different coefficients for each country, while developing possible correlations between national fiscal policies, which would reveal the existence of common factors. The results provide clear evidence of a structural break in the rule after the introduction of the new fiscal regulations and, as the hypothesis of equality in the national coefficients of the rule is clearly rejected, reveal a need to consider specific national factors.

Suggested Citation

  • Agustin Garcia & M. J. Arroyo & R. Minguez & J. Uxo, 2009. "Estimation of a fiscal policy rule for EMU countries (1984-2005)," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 869-884.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:7:p:869-884
    DOI: 10.1080/00036840701720739
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    References listed on IDEAS

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    1. Alan S. Blinder, 2004. "The Case Against the Case Against Discretionary Fiscal Policy," Working Papers 102, Princeton University, Department of Economics, Center for Economic Policy Studies..
    2. Alan S. Blinder, 2004. "The Case Against the Case Against Discretionary Fiscal Policy," Working Papers 102, Princeton University, Department of Economics, Center for Economic Policy Studies..
    3. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 168, European Central Bank.
    4. Craig Burnside & Martin S. Eichenbaum & Jonas D. M. Fisher, 1999. "Assessing the effects of fiscal shocks," Working Paper Series WP-99-18, Federal Reserve Bank of Chicago.
    5. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
    6. Ms. Selma Mahfouz & Mr. Richard Hemming & Mr. Michael Kell, 2002. "The Effectiveness of Fiscal Policy in Stimulating Economic Activity: A Review of the Literature," IMF Working Papers 2002/208, International Monetary Fund.
    7. Carlo A. Favero & Tommaso Monacelli, 2003. "Monetary-Fiscal Mix and Inflation Performance: Evidence from the U.S," Working Papers 234, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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    Cited by:

    1. Reicher, Claire, 2014. "Systematic fiscal policy and macroeconomic performance: A critical overview of the literature," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-37.
    2. Reicher, Claire, 2014. "A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 184-198.
    3. Plödt, Martin & Reicher, Claire A., 2015. "Estimating fiscal policy reaction functions: The role of model specification," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 113-128.
    4. Reicher, Christopher Phillip, 2013. "A set of estimated fiscal rules for a cross section of countries: Stabilization and consolidation through which instruments?," Kiel Working Papers 1850, Kiel Institute for the World Economy (IfW Kiel).
    5. Plödt, Martin & Reicher, Claire, 2014. "Estimating simple fiscal policy reaction functions for the euro area countries," Kiel Working Papers 1899, Kiel Institute for the World Economy (IfW Kiel).

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