Discussion of "Fiscal Consolidation in a Low-Inflation Environment: Pay Cuts versus Lost Jobs by Guilherme Bandeira, Evi Pappa, Rana Sajedi, and Eugenia Vella”

This paper brings new insights into the extent to which the recent experience of countries in the periphery of the euro area has been driven by large adverse shocks, the policy response to them (the fiscal consolidation), and the interplay among the shocks and the policy response. The focus is on labor market mechanisms and the way these mechanisms kick in, depending on both the fiscal instrument used to consolidate the government budget and the aggregate state of the economy.