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ECB Euro Liquidity Lines
Central bank liquidity lines have gained momentum since the global financial crisis as a crosscurrency liquidity management tool. We provide a complete timeline of the ECB liquidity line announcements and study their signalling and spillback effects. The announcement of an ECB euro liquidity line decreases the premium paid by foreign agents to borrow euros in FX markets relative to currencies not covered by these facilities by 51 basis points. Consistent with a stylized model, bank equity prices increase by around 1.75% in euro area countries highly exposed via banking linkages to countries whose currencies are targeted by liquidity lines.
Fiscal Consolidation After the Great Recession
We have examined the fiscal consolidation episodes in a group of OECD countries from 2009 to 2014. The range of the estimated short-term fiscal multiplier runs from 1.2% to 2% of GDP, larger than those obtained in more “normal times”, implying that the contractionary effect has been greater in depressed environments. Nevertheless, we have also found that revenue measures have a higher and more persistent real impact than expenditure measures, which is more consistent with the literature and suggests that expenditure cuts are less harmful for the economy than tax hikes.
Fiscal Policy and the Cycle in Latin America
Abstract: A stronger macroeconomic position when the financial crisis erupted allowed Latin American economies to mitigate its impact through fiscal expansions, reversing the characteristic procyclical behaviour of fiscal policy. At the same time, in the last two decades fiscal rules have been extensively adopted in the region. This paper analyses the stabilising role of discretionary fiscal policy over time, and the role of fiscal financing conditions and fiscal rules in this evolution in a sample of eight Latin American economies. The analysis shows three main results: i) fiscal policies became countercyclical during the crisis, but they have turned procyclical again in recent years; ii) financing conditions are confirmed to be a key driver of the fiscal stance, but their relevance has recently diminished; and iii) fiscal rules are associated with a more stabilising role for fiscal policy
