Fiscal sustainability, monetary policy and economic growth in the Euro Area: In search of the ultimate causal path

  1. Golpe, Antonio A. 3
  2. Sánchez-Fuentes, A. Jesus 2
  3. Vides, José Carlos 1
  1. 1 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

  2. 2 ICEI. Complutense University of Madrid
  3. 3 University of Huelva, Spain & ICEI - Complutense University of Madrid
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Revista:
Economic Analysis and Policy

ISSN: 0313-5926

Año de publicación: 2023

Volumen: 78

Páginas: 1026-1045

Tipo: Artículo

DOI: 10.1016/J.EAP.2023.04.038 GOOGLE SCHOLAR lock_openAcceso abierto editor

Otras publicaciones en: Economic Analysis and Policy

Resumen

To assess the ultimate causal flow between monetary policy indicators, fiscal sustainability and economic growth has been deeply studied in the literature. However, this issue is still open to discussion due to mixed results and caveats/limitations of existing studies. Importantly, previous analyses mostly focus on bivariate/trivariate systems, missing a relevant piece of economic drivers. We analyse jointly these interdependencies by applying multivariate Granger Causality and determining an ultimate ”causality path” excluding redundant relationships. Thus, we combine recent developments introduced to estimate the Granger causality procedure based on Meta-analysis in heterogeneous mixed panels and graphical models searching iteratively for the existing dependencies between a multivariate set of information. Our results provide novel empirical evidence suggesting that monetary policy variables play a leading role in the resulting complex economic system. Furthermore, we do find evidence supporting the role of Total Expenditure as a driver of fiscal policy.

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