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The Dynamic Effects of Monetary Policy and Government Spending Shocks on Unemployment in the Peripheral Euro Area Countries

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  • Pietro Dallari
  • Antonio Ribba

Abstract

In this paper we study the response of unemployment to monetary policy and fiscal shocks in the peripheral Euro-area countries. By applying the structural near-VAR methodology, we jointly model Euro area-wide and national variables while preserving the invariance of the set of Euro-area common shocks. Our main finding is that fiscal multipliers vary across countries and the results are consistent with the prediction of the standard New Keynesian model only in Italy and Greece. Instead, the multipliers exhibit a nonKeynesian sign in Ireland, Portugal and Spain. These results seem to be robust to alternative identification strategies. As far as the monetary policy shock is concerned, we find that it plays an important role, jointly with the other Euro-area wide shocks, as a long-term driver of national unemployment.

Suggested Citation

  • Pietro Dallari & Antonio Ribba, 2019. "The Dynamic Effects of Monetary Policy and Government Spending Shocks on Unemployment in the Peripheral Euro Area Countries," Department of Economics 0143, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    • Handle: RePEc:mod:depeco:0143
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    More about this item

    Keywords

    Business Cycles; Fiscal Shocks; Unemployment; Euro area; Near-Structural VARs;
    All these keywords.

    JEL classification:

    • 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; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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