Global Growth on Life Support? The Contributions of Fiscal and Monetary Policy Since the Global Financial Crisis

45 Pages Posted: 13 Mar 2019

See all articles by Ursel Baumann

Ursel Baumann

European Central Bank (ECB)

David Lodge

European Central Bank (ECB)

Mirela Miescu

Queen Mary University of London

Date Written: March 12, 2019

Abstract

This paper compares the role of monetary and fiscal policy shocks in advanced and emerging economies. Using a model with a hierarchical structure we capture the variability of GDP response to policy shocks both between and within the groups of advanced and emerging countries. Our results provide evidence that fiscal policy effects are heterogeneous across countries, with higher multipliers in advanced economies compared to emerging markets, while monetary policy is found to have more homogeneous effects on GDP. We then quantify the policy contribution on GDP growth in the last decade by means of a structural counterfactual analysis based on conditional forecasts. We find that global GDP growth benefited from substantial policy support during the global financial crisis but policy tightening thereafter, particularly fiscal consolidation, acted as a significant drag on the subsequent global recovery. In addition we show that the role of policy has differed across countries. Specifically, in advanced economies, highly accommodative monetary policy has been counteracted by strong fiscal consolidation. By contrast, in emerging economies, monetary policy has been less accommodative since the global recession.

Keywords: fiscal policy, monetary policy, panel VAR, conditional forecast

JEL Classification: C32, E42, E52

Suggested Citation

Baumann, Ursel and Lodge, David and Miescu, Mirela, Global Growth on Life Support? The Contributions of Fiscal and Monetary Policy Since the Global Financial Crisis (March 12, 2019). ECB Working Paper No. 2248 (2019); ISBN 978-92-899-3510-4 , Available at SSRN: https://ssrn.com/abstract=3351787 or http://dx.doi.org/10.2139/ssrn.3351787

Ursel Baumann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
Frankfurt am Main, D-60311
Germany

David Lodge

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mirela Miescu

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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