How much did fiscal policy contribute to euro area real GDP growth during the Great
Recession? We estimate that discretionary fiscal measures have increased annualized
quarterly real GDP growth during the crisis by up to 1.6 percentage points. We obtain
our result by using an extended version of the European Central Bank’s New Area-
Wide Model with a rich specification of the fiscal sector. A detailed modeling of the
fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal
for our result.
Paper can be read here.