Measuring Fiscal Spillovers in EMU and Beyond: A Global VAR Approach

Abstract

This paper identifies and measures fiscal spillovers in the EU countries empirically using a global vector autoregression (GVAR) model. Our aim is to look at the sign and the absolute values of fiscal spillovers in a country-wise perspective and at the time profile (impulse response) of the impacts of fiscal shocks. We find moderate spillover effects of fiscal policy shocks originating in Germany and France. However, there is significant variation regarding magnitude of the spillovers among destination countries and country clusters. Furthermore, we find some evidence that spillovers generated by German or French fiscal spillovers are stronger for EMU than non-EMU countries in Europe.

Keywords: EMU Versus Rest of Europe, Fiscal Policy Coordination, Fiscal Spillovers, GVAR Analysis, Regional Shocks, Impulse Response Analysis, Trade Weights

JEL Classification: C50, E61, F15, F42, H60