Impact of fiscal measures in response to the COVID-19 pandemic on small-open economies: lessons from Slovenia

We assess the impact of the fiscal expansion in response to the COVID-19 pandemic on the Slovenian economy via a twofold approach. Firstly, we employ a structural VAR model in order to estimate the effects of fiscal shocks. The findings suggest a significant response of GDP, private consumption, and imports to fiscal shocks. Secondly, we simulate fiscal shocks in a three-scenario setup using a calibrated large-scale DSGE model. The outcomes of this highlight that a government consumption shock explains the lion's share of domestic fluctuations, compared to other unanticipated fiscal developments. The main transmission channel is high complementarity between private and government consumption.