Daney, Valdivia and Marcelo, Montegro (2011): Boosting cycles and Stabilization effects of Fiscal Rules.
Download (751kB) | Preview
The dynamic and the structure of the economy determine the effects of political economy shocks, fiscal and monetary policy. Based on a DSGE model and stylized facts for small open economy, we evaluate the effects of fiscal consumption tax shocks on the presence of two fiscal rules in the periods of 1990 to 2000 and 2001 to 2010. The two rules are based on: first, taxes adjust according to the debt level and government expenditures; and second, balanced budget where taxes adjust every time in order to preserve the equilibrium in the fiscal budget. Results show that after the fiscal shock hits the economy, the first fiscal rule has mayor stabilization effects on the economy than the second one, around 50%, and the GPD react greater than in the second period, 0.02%.
|Item Type:||MPRA Paper|
|Original Title:||Boosting cycles and Stabilization effects of Fiscal Rules|
|Keywords:||Government expenditure, fiscal rule, pass - through, rule-of- thumb households|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
|Depositing User:||Daney David Valdivia|
|Date Deposited:||08. Jul 2011 23:11|
|Last Modified:||12. Feb 2013 09:20|
Andrés, J. and R. Domenéch (2005): “Automatic Stabilizers, Fiscal Rules and Macroecomomic Stability”, Valencia University.
Central Bank of Bolivia: Monetary Policy Report, January, 2008.
Bénassy, J-P. (2002), The Macroeconomics of Imperfect Competition and Nonclearing Markets, MIT Press.
Blanchard, O. and R. Perotti (2002). “An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output.” Quarterly Journal of Economics, Nº117, pg 1329–1368.
Caputo, R., Liendo, F and J.P. Medina (2006): “New Keynesian Models for Chile in the Inflation – Targeting Period: A Structural Investigation”, Central Bank of Chine, WP 402.
Andrés, J., R. Doménech and C. Leith (2006): “Fiscal Policy, Macroeconomic Stability and Finite Horizons”. Scottish Journal of Political Economy, 53(1).
Fatás, A. and I. Mihov (2001). “The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence.” INSEAD, Working Paper.
Favero, C. (2001): Applied Macroeconomitrics, Oxford University Press.
Galí, J. (1994): “Government Size and Macroeconomic Stability”. European Economic Review, 38(1), 117-132. Gali, J. and R. Perotti (2003): “Fiscal Policy and Monetary Integration in Europe”. Economic Policy, 37, 533-72
Galí, J. and M. Echeinbaum (2004): “Monetary Policy and Exchange Rate Volatility in a Small Open Economy”, Review of Economic Studies. Nº 72, pg 707 – 734.
Galí, J., López – Salido, D. and J. Vallés (2007): “Understanding the Effects of Government Spending on Consumption”, European Economic Association, Vol 5, Nº 1, pgh 227 – 270.
Galí, J. and M. Gertler (1999): “Inflation dynamics: a structural econometric approach” Journal of Monetary Economics, Vol. 44, Nº 2, pg. 195–222.
García, C. and J. Restrepo (2006): “The Case of Countercyclical Rule – Based Fiscal Regime”, Central Bank of Chile.
García, C. and J. Restrepo (2007): “How Effective is Government Spending in a Small Open Economy with Distortionary Taxes”, Central Bank of Chile.
Hemming, R., M. Kell and S. Mahfouz (2002): “The Effectiveness of Fiscal Policy in Stimulating Economic Activity-A Review of the Literature”. IMF Working Paper WP/02/208.
Kocherlacota, N (2009): “ModernMacroeconomic Models as Tools for Economic Policy”, Federal Reserve Bank of Minneapolis.
López- Salido D. and R. Blakrishnan (2002): “Understanding UK inflation: the role of openness” Bank of England, WP 164.
Mountford, A. and H. Uhlig (2004): “What Are the Effects of Fiscal Policy Shocks?”. Mimeo. Humboldt University.
Schmitt-Grohé, S. andM. Uribe (1997): “Balanced-Budget Rules, Distortionary Taxes and Aggregate Instability”. Journal of Political Economy, 105 (5), 976-1000.
Schmidt-Hebbel, K. and M. Tapia (2002): “Inflation Targeting in Chile”, North American Journal of Economics and Finance Nº 13, pg 125 – 146.
Smets, F. and R. Wouters (2002): “An Estimated Stochastic Dynamic General Equilibrium Model of the Euro Area”, European Central Bank.
Valdivia, D. (2008): “¿Es importante la fijación de precios para entender la dinámica de la inflación en Bolivia?”, INESAD, WP Nº 02/2008.
Valdivia, D. and Montenegro, M (2008): “Bolivia’s Fiscal Rules: Dynamic Stochastic General Equilibrium Model Approach”, 5th DYNARE conference, Oslo-Norway.