FIRSTRUN Workshop: Assessing the effectiveness of enhanced EU economic governance
On March 24, 2017, CASE hosted the FIRSTRUN Workshop on Fiscal Adjustment and Stabilization Policies in the EU.
The FIRSTRUN project is a European Union funded multinational research project that investigates the need for fiscal policy coordination in the EU. The project started in March 2015 and will continue until March 2018. There are eight members of the consortium: CASE, CEPS (Belgium), ETLA (Finland), IER SAS (Slovakia), IHS (Austria), LSE (UK), LUISS (Italy), NIESR (UK). The consortium conducts research aimed at advancing the theoretical and practical debates on the effective mechanisms of fiscal policy coordination.
During the workshop in Warsaw, members of the consortium presented the findings of their research papers which examined the importance of fiscal policy spillovers and the gains from fiscal policy coordination in the EU. Additionally, the seminar featured a presentation by Marcin Kolasa from the National Bank of Poland.
Macroprudential Tools, Transmission, and Modelling prepared by Oriol Carreras, E. Philip Davis, and Rebecca Piggott (all authors from the National Institute of Economic and Social Research, London) empirically tested the effectiveness of a number of macroprudential policies. It used IMF’s databases from 19 OECD countries in 2000-2014, and it found that taxes on financial institutions and strict loan‑to-value and debt-to-income ratio limits may be particularly effective macroprudential tools.
On the Limits of Macroprudential Policy by Marcin Kolasa (National Bank of Poland) discussed the function of macroprudential tools based on the loan-to-value ratio in achieving stabilization objectives as a complement to interest‑rate-based monetary policy. This function, the paper found, seems to be limited as far as the inflation-output volatility tradeoff is concerned. On the other hand, fiscal policy based on government spending adjustments can be successfully combined with monetary policy.
Government Debt Deleveraging in the EMU was jointly prepared by Alexandre Lucas Cole (LUISS, Rome), Chiara Guerello (LUISS, Rome), and Guido Traficante (European University of Rome). The paper used state-of-the-art methodology, namely a two-country new-Keynesian dynamic stochastic general equilibrium (DSGE) model, to posit that, under the conditions of debt-elastic bond spread and incomplete international financial markets, taxes are a better instrument of deleveraging than government consumption or transfers.
Towards an EU Budget With an Effective Stabilisation Function by David Rinaldi from the Centre for European Policy Studies, Brussels) was a policy paper discussing the possibility of increasing the economic stabilization function of the EU budget. This could be achieved by making the already existing labor market-related funds, such as the Youth Employment Initiative and the European Globalisation Adjustment Fund, more flexible and accessible.
The paper Analysing the Relevance of the MIP Scoreboard’s Indicators by Tomáš Domonkos, Filip Ostrihoň, Ivana Šikulová, and Mária Širaňová (all authors from the Slovak Academy of Science, Bratislava) undertook to examine the indicators used in the Macroeconomic Imbalance Procedure (MIP), European Union’s early warning mechanism. Using a multivariate unbalanced logit model, the research showed that different indicators work with different time lags, and that the activity rate, house price index, youth unemployment rate, and private sector debt are the most relevant indicators in the short term.
Finding the Bottom Line: A Quantitative Model of the EU's Fiscal Rules and their Compliance by Tero Kuusi (the Research Institute of the Finnish Economy, Helsinki) used a dynamic simulation model to quantify the minimum constraint that the EU fiscal rules impose on fiscal policy in the time of consolidation. The paper was presented for the first time in front of an international audience.
Fiscal Risk-Sharing in Response to Shocks: New Lessons for the Euro Area from the US by Cinzia Alcidi and Gilles Thirion (both authors from the Centre for European Policy Studies, Brussels) discussed the insights that can be learnt from the US federal Unemployment Insurance in the context of managing idiosyncratic shocks in the euro area.
Each presentation was followed by a discussion and constructive comments from the participants of the workshop: members of the consortium and stakeholders from Polish governmental bodies (Ministry of Finance, National Bank of Poland).
