Lennard Welslau’s research while affiliated with National Bank of Denmark and other places

This paper analyses how fiscal consolidation affects economic growth and public debt ratios in the Debt Sustainability Analysis (DSA) framework of reformed EU fiscal rules. DSA relies on macroeconomic and fiscal policy assumptions; it plays an essential role in providing an anchor for bilateral negotiations and surveillance in the context of reformed EU fiscal rules. While the European Commission assumes a constant short-run fiscal multiplier of 0.75, the existing literature highlights that there is no single fiscal multiplier for all countries and all times. Furthermore, the European Commission’s DSA framework assumes a fast dissipation of the output effect of fiscal adjustment, and that fiscal consolidation efforts by trading partners do not spill over into domestic economic activity. Motivated by findings from the literature on fiscal multipliers and cross-country spillovers, we present DSA simulations that relax the official assumptions by focusing on the four largest euro area economies: Germany, France, Italy and Spain. Our results suggest that the debt sustainability framework in reformed EU fiscal rules is sensitive to changes in assumptions and may underestimate the negative growth effects of fiscal adjustment. Hence, public debt ratios may turn out higher than expected.

We investigate export competition between China and Latin America and the Caribbean (LAC) in the United States market between 2002 and 2022. Using a sample of 33 exporters and 10‐digit Harmonised Tariff Schedule (HS) level trade data, we estimate a structural gravity model using an instrumental variable constructed from Chinese exports to eight other industrialised nations. We use a first‐order Taylor‐series expansion à la Baier and Bergstrand ( Journal of International Economics , 2009a, 77, 77) to approximate the multilateral price terms pointed out by Anderson and Van Wincoop (American Economic Review , 2003, 93, Article 1). The results show that the impact of Chinese exports on United States imports from LAC is negative and statistically significant across several model specifications, levels of aggregation, and sectors. A percentage increase in imports from China decreased imports from LAC by ca. 0.75%. The displacement effect is ca. 0.32 for manufacturing products, 1.01 for resource‐based products, 1.33 when estimated only for South America, 0.25 for the Caribbean, and not significant for Central America.