Bank of Spain paper explores links between fiscal consolidation and private deleveraging
Larger and faster fiscal consolidations have greater impact on output, authors argue
A working paper published by the Bank of Spain explores the channels through which fiscal contraction affects private deleveraging.
In When fiscal consolidation meets private deleveraging, Javier Andrés, Óscar Arce and Carlos Thomas present a general equilibrium model of a small open economy within a monetary union. They use this to analyse the interaction between fiscal consolidation and private-sector deleveraging. One key change to their model, they say, is to use more realistic assumptions
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