ADEMU conference: Fiscal Policy in the EMU – The Way Ahead | 19-20 March, Frankfurt

1. Discussion of: Fiscal Policies in the Euro Area:
Revisiting the Size of Spillovers
by Mario Alloza, Pablo Burriel and Javier Perez
Sebastian Gechert (IMK)
Bundesbank Fiscal Policy in EMU Workshop, March 2018
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2. Research question
• How strong are fiscal multipliers and spillovers within/between
major EA countries
Approach
• identify fiscal shocks by country via Blanchard and Perotti
(2002) on a quarterly basis
• estimate multipliers and spillovers via parsimonious local
projections
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3. Novelty / Strengths
• use of a consistent quarterly fiscal dataset for several EA
countries → nice for spillovers
• use local projections and bilateral spillovers to calculate
overall spillover effect
• disaggregate gov’t spending components
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4. Findings
• domestic multipliers of gov’t general spending of about 1,
largest for GER
• rather large multipliers for public investment
• predominantly positive spillovers, largest for GER as
destination country, but smallest as country of origin
• spillovers however largely insignificant at 95% levels
• trade channel important for explanation
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5. Size of multipliers
Table 1: Comparison with my multiplier database (Gechert 2015 OEP,
Gechert & Rannenberg 2018 JoES)
DE FR IT ES EA
GSPEND, 2years
ABP 1.39 1.14 1.09 1.36 1.09
GR, RAV 0.74 0.89 0.92 0.87 0.72
GR, RLO 1.66 1.81 1.84 1.79 1.64
GCONS, 2years
ABP 1.74 0.33 1.43 -0.02 1.02
GR, RAV 0.32 0.47 0.50 0.45 0.30
GR, RLO 1.35 1.50 1.53 1.48 1.33
GINV, 2years
ABP 4.90 2.59 1.76 2.29 3.17
GR, RAV 1.34 1.49 1.52 1.47 1.32
GR, RLO 2.15 2.30 2.33 2.28 2.13
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6. Scaling
• Why do g responses range about .05-.1 “percent”? Are these
really e 1 shocks as described?
• Then I would have expected a response of 1 for g
• Could this have an impact on the size and accurate weighting
of the spillovers?
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7. Explaining Effects Through Trade Channel
• Intension is clear and effects on IM and X plausible
• However, what other channels would exist?
e-exchange rate with ROW also reflected in IM and X →
disentangle bilateral trade and 3rd-country trade effects to
make a nice contribution
MP reaction (-) or lack thereof (+, through real interest rate
effect) at the ZLB? (Blanchard / Erceg / Linde 2015) → use a
regime-dependent framework? Another nice contribution
• Disentangling of direct (import content of g) vs indirect (AD)
effect. You touch that topic (Fn 17), but could be
investigated further
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8. Some minor questions
• Why does the scaling by GDP in eq(5) make it necessary to
include controls? And shouldn’t they be scaled as well?
• How where the sig-levels for multipliers calculated? Via delta
method?
• Eq(10), why shockit = j=i ωijεG×G?
• Why tax multipliers only in appendix and what about their
spillovers?
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9. Extensions
• Structural break 1999? Look for some sample split or
interaction term specification?
• Fiscal foresight? Not very plausible for spillover effects
• Use panel structure to gain some additional power?
• Discussion of country differences
Why would GER multipliers be biggest? (most open economy)
Why would country with biggest multipliers produce lowest
spillovers to others?
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