Are the effects of fiscal changes different in times of crisis and non-crisis? The French Case

This paper shows that the impact of changes in budgetary variables on major macroeconomic variables varies in sign and magnitude in times of crisis and non-crisis in France. We find that these nonlinearities are both frequent (as they exist on all behaviors analyzed: real GDP, private consumption, business investment and private employment) and significant. For this, we estimate time-varying probability Markov-switching models (TVPMS) in order to take into account two budgetary regimes, on the one side periods of severe recessions or depressions (crises), and, on the other side "normal" periods (expansions or moderate recessions). These two regimes are identified endogenously, so that we do not need to preliminary separate episodes of huge contractions and expansions of the business cycle. Further, we are able to identify the variables influencing the probability of a switch between regimes. Searching for nonlinear fiscal impacts in the form of regime-switching effects, we assume temporary variations in the budgetary variables, both on the revenue side (taxes on consumption, on firm's profit, lump sum transfers) and on the expenditure side (traditional public boosts of aggregate demand, transfers, and subsidies). Our results show that if one considers the aggregate GDP, public expenditure has a stronger impact during crisis and the expenditure multiplier is greater than the tax multiplier. Also, when households are sensitive to the unemployment situation, tax cuts do not increase consumption spending, while transfers are playing a significant role. On the firms side, our results show that direct taxes changes induce a (stimulus) effect in the investment rate only during non-crisis periods. A rise in subsidies has a negative influence during crises. Finally, the estimates suggest that employment policies should be asymmetric: fiscal measures aiming at reducing unit labor costs could be efficient in good times, while an increase in public employment is preferable during crisis.Markov-Switching Models, Fiscal Policy, Crisis.

Fiscal developments in the euro area beyond the crisis: some lessons drawn from fiscal reaction functions

In this paper, we examine whether the fact that governments incorporate an objective of sustainability in their budgetary decisions is an element likely to increase the likelihood of a decrease in their deficit and debt ratios beyond the crisis (over the years from 2010 to 2015). We estimate a fiscal reaction function for the Euro area countries and demonstrate that the discretionary policies seem to be pro cyclical in average, thereby influencing the budget balance in the opposite direction than the automatic stabilizers. Our simulations of these rules over the next five years lead us to conclude that two groups of countries could emerge as regards their respective budgetary situations. On the one hand, some “virtuous” countries whose structural deficits will diminish whatever the “exit crisis” scenario envisaged, whereas on the other side, others will not succeed in stabilizing their national debt ratio, because their discretionary fiscal policy is less pro cyclical.euro zone ; exit crisis scenario ; fiscal policy

The changing role of house price dynamics over the business cycle

In this paper, we attempt to analyse the relationship between house price developments and the business cycle. Employing a time-varying transition probability Markov switching framework, we provide empirical evidence that house price growth may prove a useful leading indicator for turning point detection. In focusing on three countries, the US, UK and Spain, we furthermore provide evidence that although potentially informative from an overall perspective in business cycle modelling, the signi.cance of signals contained in house prices may not be symmetric across the identi.ed high growth and low growth states. In addition, we suggest a possible range of values for house price de.ation which may trigger a recession the following period.Business cycles, leading indicators, housing, Markov switching.

New challenges for public debt in advanced economies Summary of the conference held in Strasbourg on 16-17 September 2010.

On 16-17 September 2010, the Banque de France’s Directorate General Economics and International Relations and the Bureau d’économie théorique et appliquée (BETA) of Strasbourg University jointly hosted a conference on the topic “New challenges for public debt in advanced economies” that brought together 70 economists from French and foreign universities, ESCB and other central banks, and European and international institutions.public debt, governance, financial markets, fiscal policy.

Nouveaux défis pour la dette publique dans les pays avancés : synthèse du colloque tenu à Strasbourg les 16 et 17 septembre 2010.

Les 16 et 17 septembre 2010, la Direction générale des Études et des Relations internationales a organisé en collaboration avec le Bureau d’économie théorique appliquée (BETA) de l’université de Strasbourg une conférence réunissant 70 économistes issus du monde académique français et étranger, de banques centrales du SEBC ou d’ailleurs et d'institutions européennes et internationales sur le thème « Nouveaux défis posés par la dette publique dans les pays développés ».Dette publique, gouvernance, marchés financiers,politique budgétaire.