The Dynamic Effects of Monetary Policy and Government Spending Shocks on Unemployment in the Peripheral Euro Area Countries

In this paper we study the response of unemployment to monetary policy and
fiscal shocks in the peripheral Euro-area countries. By applying the structural near-VAR
methodology, we jointly model Euro area-wide and national variables while preserving the
invariance of the set of Euro-area common shocks. Our main finding is that fiscal multipliers
vary across countries and the results are consistent with the prediction of the standard
New Keynesian model only in Italy and Greece. Instead, the multipliers exhibit a nonKeynesian sign in Ireland, Portugal and Spain. These results seem to be robust to alternative
identification strategies. As far as the monetary policy shock is concerned, we find that it
plays an important role, jointly with the other Euro-area wide shocks, as a long-term driver
of national unemployment.