Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171425
Authors: 
Kapeller, Jakob
Heimberger, Philipp
Year of Publication: 
2016
Series/Report no.: 
ICAE Working Paper Series 50
Abstract: 
This paper analyzes the performative impact of the European Commission's model for estimating 'potential output', which is used as a yardstick for measuring the 'structural budget balance' of EU countries and, hence, is crucial for coordinating European fiscal policies. In pre-crisis years, potential output estimates amplified the build-up of private debt, housing bubbles and macroeconomic imbalances. After the financial crisis, they were revised downwards, which increased fiscal consolidation pressures. By focusing on the euro area's economies during 1999-2014, we identify two performative aspects of the potential output model. First, the political implications of the model led to a pro- cyclical feedback loop, reinforcing general economic developments. Second, the model has contributed to national lock-ins on path dependent debt trajectories, fueling 'structural polarization' between core and periphery.
Subjects: 
performativity
potential output
path dependency
Eurozone crisis
fiscal policy
austerity
Document Type: 
Working Paper

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