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Fiscal policy in the semi-structural model ECB-BASE

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  • Bańkowski, Krzysztof

Abstract

Fiscal policy constitutes a key tool for business cycle stabilisation next to monetary policy. In this context, having a well-suited macroeconomic model for analysing fiscal policy at a central bank is of primary importance. This paper documents the fiscal block of the ECB-BASE, which is a semi–structural model for the euro area developed at the ECB for projections and policy analysis. The set-up of the fiscal block ensures comprehensive coverage of the government sector and tight links to the quarterly fiscal accounts. Thanks to this design, it is possible to simulate the model with a wide range of fiscal shocks, which, as shown in the paper, have distinct propagation mechanisms. Having discussed the set-up and the potency of fiscal policy in the model, this paper also includes the following applications for fiscal policy analysis: counterfactual scenarios with alternative fiscal rules, assessment of fiscal policy conducted in the euro area in the past and stochastic fiscal projections. JEL Classification: C3, C5, E1, E2, E6

Suggested Citation

  • Bańkowski, Krzysztof, 2023. "Fiscal policy in the semi-structural model ECB-BASE," Working Paper Series 2802, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20232802
    Note: 2648110
    as

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    More about this item

    Keywords

    euro area; fiscal policy; forecasting; semi-structural model; simulations;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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