Author Archives: Pekka Vanhala

New deliverable on government debt deleveraging published

A new deliverable on government debt deleveraging by Alexandre Lucas Cole (LUISS Guido Carli), Chiara Guerello (LUISS Guido Carli), and Guido Traficante (European University of Rome) has been published today:

D4.4: Government Debt Deleveraging in the EMU

Abstract: We evaluate the stabilization properties and welfare implications of different government debt deleveraging schemes and instruments for deleveraging in a currency union. In a two-country new-Keynesian DSGE model, with a debt-elastic government bond spread and incomplete international financial markets, we study the effects of government debt deleveraging, under a range of alternative shocks and under alternative scenarios for fiscal policy coordination. We find that greater stabilization is achieved by backloading the deleveraging process and when the two countries reduce the net exports gap. Moreover, taxes are a better instrument for deleveraging compared to government consumption or transfers. Our policy prescriptions for the Eurozone are to reduce government debt more gradually over time and less during recessions and to do so using distortionary taxes, while concentrating on reducing international demand imbalances.


FIRSTRUN researchers’ articles published in the National Institute Economic Review

The current issue of the National Institute Economic Review* features several articles by FIRSTRUN researchers.

Simon Kirby (NIESR):
Economic Policy and Surveillance in Europe: Introduction

Iain Begg (LSE):
Fiscal and Other Rules in EU Economic Governance: Helpful, Largely Irrelevant or Unenforceable?

Tero Kuusi (Etla):
Does the Structural Budget Balance Guide Fiscal Policy Pro-Cyclically? Evidence from the Finnish Great Depression of the 1990s

Tomáš Domonkos, Filip Ostrihon, Ivana Šikulová, Mária Širanová (IER):
Analysing the Relevance of the MIP Scoreboard’s Indicators


Also see a related article by Jan in’t Veld (DG ECFIN):
A Public Investment Stimulus in Surplus Countries and Its Spillovers in the EA


*) The National Institute Economic Review is the quarterly publication of the National Institute of Economic and Social Research, one of Britain’s oldest and most prestigious independent research organisations.

National Institute Economic Review, founded in 1959, provides a vehicle for publishing and promoting high quality research and debate on economic and related social issues.

National Institute Economic Review, Volume 239, Issue 1, February 2017.

New column on risk sharing across the US and Eurozone

Read Valentina Milano and Pietro Reichlin’s new column Risk sharing across the US and Eurozone: The role of public institutions (VoxEU, 23 January 2017).

Risk sharing across the Eurozone is well below the levels observed in other federations, including the US. This column argues that the US achieves more intensive risk sharing largely because of a more integrated financial market, and also that the contribution of public institutions to risk sharing is much higher in the Eurozone than in the US. The reason why the Eurozone needs more fiscal transfers to withstand idiosyncratic shocks is not because these institutions should do more to improve risk sharing, but because delegation of risk sharing to national governments threatens the stability of the currency union.


New deliverable on EU fiscal rules published

Deliverable 6.4 by Iain Begg (LSE) has been published today:

Fiscal and other rules in EU economic governance: helpful, largely irrelevant or unenforceable?

Abstract: EU Member States have been pushed to adopt more extensive and intrusive fiscal rules, particularly in the euro area, but also in other EU Member States, yet evidence that they are succeeding is, at best, tentative. The EU level Stability and Growth Pact (SGP) has been – and remains – the most visible such rule, but has been complemented by a profusion of national rules and by new provisions on other sources of macroeconomic imbalance. Much of the analysis of rules has concentrated on their technical merits, but tends to neglect the political economy of compliance. This paper examines the latter looking at compliance with fiscal rules at EU and Member State levels, and at the rule-based mechanisms for curbing other macroeconomic imbalances. It concludes that politically-driven implementation and enforcement shortcomings are given too little attention, putting at risk the integrity and effectiveness of rules.


New deliverable on revisions of the cyclically adjusted balances published

A new deliverable on Revisions of the cyclically adjusted budget balance published (D2.4, CEPS).

Abstract: The aim of this study is to analyse the revisions of the cyclically adjusted balances of the EU15 countries in order to learn whether the turn of the cycle is particularly prone to error and to evaluate whether the EU’s fiscal framework is well equipped for dealing with potential revisions. The analysis is conducted with real-time fiscal data published by the European Commission for the years 2003-2016. Our study finds that the cyclically adjusted balance forecasts as well as in-year estimates are heavily revised in the following years. Moreover first ex-post data are still significantly revised in the following years. We find no strong evidence to support the notion that these revisions are larger at the turn of the cycle and thus conclude that revisions are of a systematic nature. The revisions are large enough to cause significant differences in the ex-ante and ex-post assessments by the European Commission on whether member states achieved their structural targets. This study elaborates on the built-in flexibility in the Stability and Growth Pact (SGP), on which the Commission can capitalise to avoid unwarranted ex-post sanctioning. Moreover, the SGP entails several safeguards against revisions negatively affecting the policy advice given to member states, particularly with regard to sanctioning.


2nd FIRSTRUN workshop (26 Sept 2016) presentations available

The second FIRSTRUN workshop E(M)U governance: From policy coordination to resource centralization? was organized by CEPS in Brussels on 26 September 2016.



Matthias Busse (CEPS): Revisions of structural budget balance data and the impact on the EU fiscal framework

Thomas Davoine (IHS): Cross-Country Long-Run Spillover Effects and Coordination of Fiscal Policy: a Quantitative Exploration for Europe (based on Deliverable 1.6)

Alexandre Lucas Cole (LUISS): One EMU fiscal policy for the euro (based on the article One EMU Fiscal Policy for the Euro, also available as the Deliverable 3.2)

Gilles Mourre (European Commission): Income insurance: a theoretical exercise with empirical application for the euro area (based on the publication Income insurance: a theoretical exercise with empirical application for the euro area)


For more information, please contact Niku Määttänen or Cinzia Alcidi.


New deliverable on measuring fiscal spillovers published

A new deliverable on measuring fiscal spillovers has been published:

D1.3: Measuring fiscal spillovers in EMU and beyond: A Global VAR approach (CEPS).

Abstract: This paper identifies and measures fiscal spillovers in the EU countries empirically, using a structurally stable global vector autoregression (GVAR) model. For our purposes, the individual EU countries, as well as the most important international trading partners, are modelled with a special focus on the effects of either single-country or coordinated fiscal shocks such as increases in fiscal spending. 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. For this purpose, we differentiate between the spillovers of fiscal shocks in specific EMU member countries and the spillovers of “regional” shocks, i.e. area-wide shocks to fiscal policy. Fiscal policy is measured by government expenditure, government revenues or the government budget balance, all as percentages of GDP. Special attention is paid to the question of whether or not spillovers are stronger within the EMU group than within the “Rest of Europe” due to tighter financial or trade links.