A Macroeconomic Analysis of the Impact of the EU Recovery and Resilience Facility

In this paper, we evaluate the macroeconomic effects of the EU Recovery and Resilience Facility (RRF) within the context of a macroeconometric model, specifically the National Institute of Economic and Social Research's global macroeconometric model, NiGEM. I examine the effects both on individual EU member states as well as the European Union as a whole, given the presence of potential spillovers between EU countries. I consider three key channels through which the RRF can impact the macroeconomy: the risk premium channel, the public investment channel, and the structural reforms channel. I find that the announcement of a recovery fund led to a sizeable reduction in spreads for many EU countries, increasing their fiscal headroom, though having only a negligible effect on GDP. I find that the increased public investment resulting from the RRF raises demand in the short run and supply in the long run with an implied multiplier of a little over two. Finally, although I cannot explicitly quantify the impacts of the planned structural reforms, I use NiGEM to consider the macroeconomic channels through which a subset of these reforms have effects on GDP and productivity in both the reforming Member States and the European Union as a whole.