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Public investment stimulus in surplus countries and their euro area spillovers
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Public investment stimulus in surplus countries and their euro area spillovers

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This note describes model simulations that broadly confirm the view that at the current juncture, with monetary policy constrained by the zero interest rate floor, a debt-financed increase in government investment in surplus countries will have positive GDP spillovers to the rest of the euro area. If monetary policy cannot be accommodating, GDP spillovers may be small, but when policy rates are held constant for two years, spillovers can be significant. An increase in (productive) spending in Germany and the Netherlands can boost GDP in these countries and also have significant positive spillovers on the rest of EA GDP, while the effects on current accounts are likely to be small. Effects can be even larger when investment is directed to the most productive projects. With low borrowing cost at present, the increase in government debt for surplus countries will be modest, while there could be an improvement in debt ratios in the rest of the euro area.
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ISSN 2443-8030
ISBN 978-92-79-54485-9
DOI 10.2765/413616
Katalognummer KC-BE-16-016-EN-N
ISBN 978-92-79-54484-2
DOI 10.2765/86462
Katalognummer KC-BE-16-016-EN-C
PDF
ISSN 2443-8030 ISBN 978-92-79-54485-9 DOI 10.2765/413616 Katalognummer KC-BE-16-016-EN-N
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ISSN ISBN 978-92-79-54484-2 DOI 10.2765/86462 Katalognummer KC-BE-16-016-EN-C
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