Comment

Erceg andLindé use a fully fledged general equilibriummodel to address a very topical issue. By characterizing the euro area with two distinct blocks of countries, the paper assesses the cross-border spillovers from a fiscal contraction in one of the blocks. The authors evaluate how the zero lower bound constraint on monetary policy affects these spillovers. The exercise compares the case of a unilateral contraction in a small country versus a contraction in a larger block of countries. It shows that the fiscal multiplier and the spillovers are larger when policy is constrained. Moreover, a small country gains from having a coordinated policy with other countries only if policy is unconstrained.