Domestic demand and global production in the Eurozone: A multi-regional input-output assessment of the global crisis

This paper studies the effects of domestic and foreign demand impulses in euro area economies following the Great Recession of 2008-09 and the Eurozone crisis of 2011-12. Using a global input-output framework we apply a set of metrics to assess spillover and feedback effects triggered by the dynamics of final demand. Our findings suggest that cross-country trade spillovers have had a moderate impact as compared to the role of domestic sources of final demand in explaining the contraction in income and employment. Hence, a strategy of coordinated fiscal austerity cannot be sustained by empirical evidence.