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Prometeia at the EABCN Conference

Advances in Business Cycle Analysis

Madrid, 30-31 May 2019

Prometeia participates to the conference organized by Banco de España and CEPR (both members of the Euro Area Business Cycle Network, EABCN).

It is the only consultancy and research firm selected to present a paper, among other major official institutions. 

The conference covers a broad range of themes related to empirical aspects of business cycles. Marc Giannoni (Federal Reserve Bank of Dallas and CEPR), and Lucrezia Reichlin (London Business School and CEPR) are confirmed invited speakers.

Prometeia features in the session "Lessons from the Great Recession", with the paper "Public Expenditure Multipliers in Recessions. Evidence from the Eurozone", presented jointly with Andrea Boitani, Milan Catholic University.



Technical abstract

We estimate for the Eurozone countries expenditure multipliers in recession and expansion using the local projections approach and forecast errors to identify exogenous expenditure shocks.

The empirical evidence suggests that multipliers are strongly state dependent: in a recession, an increase in government spending will be effective in boosting aggregate demand, crowding-in private consumption in the short-to-medium run, without affecting wages and inflation. Special attention is devoted to the relations between multipliers and government debt/GDP and deficit/GDP ratios.

During recessions the expansionary effects of pumping up public spending go without raising the debt/GDP ratio but rather decreasing it. The opposite applies in expansions.

Estimates also show that expenditure multipliers, in a recession, are larger in low fiscal space, high-debt, Southern countries than in low-debt, Northern countries.

It turns out that GDP multiplier effects in recessions were magnified after the 2008 world-wide financial crisis. It also appears that the debt/GDP reduction after a public expenditure increase is confined to the after-crisis period.

Prometeia at the EABCN Conference