Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/314733 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11694
Publisher: 
CESifo GmbH, Munich
Abstract: 
We implement a two-step analysis of fiscal and external causality patterns using a data set covering the 27 EU countries in the period 2002Q1-2023Q4. In the 1st step, we compute fiscal and external sustainability time-varying coefficients, modelling the cointegration relationship between government revenues and government spending, and between exports and imports. In the 2nd step, we use three recursive strategies, combined with Granger causality tests: forward expanding, rolling, and recursive window methods to capture causal relationships. Our results show that: (i) peripheral countries have lower sustainability coefficients, while non-Eurozone countries have higher sustainability coefficients, (ii) after the 2008 global financial crisis, there was an improvement in fiscal and external sustainability for most countries, (iii) during the Eurozone crisis in 2010-2012, in Austria, France, Greece, Ireland, Netherlands, Slovakia and Spain, there was causality between fiscal and external sustainability, (iv) during that period, causality was observed between the external and fiscal sustainability in EMU countries (Austria, Germany, Malta, Netherlands, Slovakia, Slovenia, Spain) and in non-EMU countries.
Subjects: 
fiscal sustainability
external sustainability
European Union
time-varying causality
lag-augmented vector autoregression
JEL: 
C22
C23
F32
F41
H30
H62
Document Type: 
Working Paper
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