We examine, within a monetary union framework, cross-country spillovers arising from government consumption and government investment, conditional on active and passive monetary policy. To do so, we use two models from different classes, a DSGE model and a traditional structural model. The main finding is that expansionary fiscal shocks in the rest of the euro area can lead to non-negligible spillovers to the Irish economy, in particular if the monetary policy stance is supportive. In this case, spillovers lead to a stimulus that increases the fiscal space of the country with positive spillovers.
|Matija; Graeme, Lozej; Walsh
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