Fiscal multipliers revisited
Ikonen, Pasi; Saarenheimo, Tuomas; Virén, Matti (05.09.2013)
JulkaisusarjaBank of Finland. Bulletin
JulkaisijaBank of Finland
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-201408073675
During the past year, there has been intense debate over the correlation between fiscal consolidation and economic growth. This article argues that the observed growth forecast errors for euro area countries in 2010 2011 were not caused by underestimated fiscal multipliers. Instead, the errors were due to a general reassessment of euro area sovereign risk, which disproportionately impacted the more vulnerable euro area countries. These countries experienced a sharp increase in their sovereign borrowing costs, a tightening of credit conditions and ultimately a sharper-than-expected contraction of domestic demand.
ISSN-L: 0784-6509 (painettu) ISSN: 1456-5870 (online).