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Financial and fiscal interaction in the euro area crisis : this time was different
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Caruso, Alberto, Reichlin, Lucrezia and Ricco, Giovanni (2019) Financial and fiscal interaction in the euro area crisis : this time was different. European Economic Review , 119 . pp. 333-355. doi:10.1016/j.euroecorev.2019.08.002 ISSN 0014-2921.
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Official URL: https://doi.org/10.1016/j.euroecorev.2019.08.002
Abstract
This paper highlights the anomalous characteristics of the Euro Area ‘twin crises’ by contrasting the aggregate macroecosnomic dynamics in the period 2009–2013 with the business cycle fluctuations of the previous decades. We report three novel stylised facts. First, the contraction in output was marked by an anomalous downfall in private investment and an increase in households’ savings, while consumption and unemployment followed their historical relation with GDP. Second, households’ and financial corporations’ debts, and house prices deviated from their pre-crisis trends, while non-financial corporations’ debt followed historical regularities. Third, the jumps in the public deficit-GDP and debt-GDP ratios in 2008–2009 were unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the ‘anomalous’ increase in public debt is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HJ Public Finance |
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Debts, Public -- European Union countries, Recessions -- European Union countries, Business cycles -- European Union countries, Financial crises -- European Union countries, European Union countries -- Economic conditions | ||||||||
Journal or Publication Title: | European Economic Review | ||||||||
Publisher: | Elsevier | ||||||||
ISSN: | 0014-2921 | ||||||||
Official Date: | October 2019 | ||||||||
Dates: |
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Volume: | 119 | ||||||||
Page Range: | pp. 333-355 | ||||||||
DOI: | 10.1016/j.euroecorev.2019.08.002 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 13 August 2019 | ||||||||
Date of first compliant Open Access: | 12 August 2021 | ||||||||
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