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Public spending, monetary policy and growth: Evidence from EU countries

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  • Papaioannou, Sotiris

Abstract

This study examines whether differences in monetary policy are associated with diverging effects of public spending on growth. At first stage, we estimate public spending multipliers for each country of the European Union (EU). Their size varies considerably across countries. Then we incorporate in the analysis the role of monetary policy and examine whether real interest rates affect the relationship between public spending and growth. The main result of the econometric analysis is that government spending can affect growth positively only when real interest rates become negative. This result remains robust to several changes in the econometric specification and measures of interest rate.

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  • Papaioannou, Sotiris, 2016. "Public spending, monetary policy and growth: Evidence from EU countries," MPRA Paper 70331, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70331
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    References listed on IDEAS

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    Cited by:

    1. Hsing Yu, 2017. "Is Real Depreciation or More Government Deficit Expansionary? The Case of Slovenia," South East European Journal of Economics and Business, Sciendo, vol. 12(1), pages 50-56, April.

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    More about this item

    Keywords

    Public spending; Fiscal multipliers; Monetary policy; Economic growth.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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