Abstract
It is largely recognised that fiscal policy will have largerresponsibilities for cyclicalstabilisation in EMU given the loss of the monetary instrument.At the same time, theEMU's budgetary framework emphasises the need to rely onautomatic fiscal stabilisers,rather than active policies in cushioning the business cycle.We show that automaticstabilisers are relatively powerful in the event of shocksto private consumption, but lessso in the case of shocks to private investment and exports.In the case of supply sideshocks, the automatic stabilisers are largely ineffective,but this may actually be a goodthing to the extent that supply-side disturbances call forstructural adjustment rather thancyclical stabilisation.
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Brunila, A., Buti, M. & 'T Veld, J. Fiscal Policy in Europe: How Effective Are Automatic Stabilisers?. Empirica 30, 1–24 (2003). https://doi.org/10.1023/A:1022646912573
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DOI: https://doi.org/10.1023/A:1022646912573