In this paper, we consider an economic framework featuring the use of monetary and fiscal rules within a monetary union. In this scenario, which should be representative of the Eurozone, we will analyse the effects of stabilization policies when dealing with a financial crisis having contractive effects on output. These problems become particularly relevant in the case of the Eurozone given that the pre-existing national differing fiscal frameworks need to be consistent with the requirements of discipline at the union level and should be supported by an appropriate design of structural policies. The member countries are characterized by the diversity of their labor markets. Given that labor market institutions differ across European countries, macroeconomic shocks, institutional changes, and international integration influence unemployment changes.
Using data provided by Eurostat, we will perform an empirical application for three sets of European countries: the core, the peripheral, and the Eastern countries. In our analysis, we will also differentiate countries according to their historical unemployment paths. We will show the results of stabilization fiscal policies on the supply-side, in terms of output and youth unemployment before the crisis, 2007, and ten years later (2017). The exercises will be performed assuming different degrees of conservativeness of the central bank, the austerity of the fiscal authorities and different levels of public debt. Our results could help us to establish the conditions under which stabilization policies would lead to less inequality in outcomes.