Published in:Institute for New Economic Thinking Working Paper Series ; No. 50
Extent:
1 Online-Ressource (26 p)
Language:
English
DOI:
10.2139/ssrn.2878005
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 24, 2016 erstellt
Description:
This paper analyzes the performative impact of the European Commission's model for estimating ‘potential output', which is used as a yardstick for measuring the ‘structural budget balance' of EU countries and, hence, is crucial for coordinating European fiscal policies. In pre-crisis years, potential output estimates amplified the build-up of private debt, housing bubbles and macroeconomic imbalances. After the financial crisis, they were revised downwards, which increased fiscal consolidation pressures. By focusing on the euro area's economies during 1999-2014, we identify two performative aspects of the potential output model. First, the political implications of the model led to a pro-cyclical feedback loop, reinforcing general economic developments. Second, the model has contributed to national lock-ins on path dependent debt trajectories, fueling ‘structural polarization' between core and periphery