Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/44954
Authors: 
Stähler, Nikolai
Thomas, Carlos
Year of Publication: 
2011
Series/Report no.: 
Discussion Paper Series 1: Economic Studies 2011,06
Abstract: 
This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existingmodels of this type, our model incorporates a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively large countries in a currency area. We also provide a notable degree of disaggregation on the government expenditures side, by explicitly distinguishing between (productivity-enhancing) public investment, public purchases and the public sector wage bill. Finally, we consider a labor market characterized by search and matching frictions, which allows to analyze the response of equilibrium unemployment to fiscal measures. In order to illustrate some of its applications, and motivated by recent policy debate in the Euro Area, we calibrate the model to Spain and the rest of the area and simulate a number of fiscal consolidation scenarios. We find that, in terms of output and employment losses, fiscal consolidation is the least damaging when achieved by reducing the public sector wage bill, whereas it is most damaging when carried out by cutting public investment.
Subjects: 
General Equilibrium
Fiscal Policy Simulations
Labor Market Search
JEL: 
E24
E32
E62
H20
H50
ISBN: 
978-3-86558-697-1
Document Type: 
Working Paper

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