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Macroeconomic Gains from Structural Fiscal Policy Adjustments: The Case of Colombia

Author

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  • Hernando Vargas
  • Andrés González
  • Ignacio Lozano

Abstract

Policymakers worldwide are drawing key lessons from recent debates on the role of fiscal policy in the recovery of advanced economies. Interestingly, in the late 1990s, facing the collapse of their economies, many emerging market economies addressed some of the focal issues currently discussed, such as the timing of fiscal adjustments, the need of fiscal impulses and their scope, the effectiveness of fiscal instruments along the cycle and the thresholds above which public-debt would hamper economic growth. In this paper, we present some evidence from Colombia suggesting that fiscal consolidation may have important effects on the behavior of the macroeconomy. Using structural nonlinear impulse response functions, we find that a fiscal policy that reduces the structural fiscal deficit, decreases the Government currency mismatch and deepens the local fixed-rate public bond market results in stronger reactions of output to Government expenditure shocks and in greater responses of market interest rates to monetary policy shocks

Suggested Citation

  • Hernando Vargas & Andrés González & Ignacio Lozano, 2015. "Macroeconomic Gains from Structural Fiscal Policy Adjustments: The Case of Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 39-81, February.
    • Handle: RePEc:col:000425:012570
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    Cited by:

    1. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez & Jesus Bejarano & Andres Gonzalez & Clark Granger-Castaño & Franz Hamann & Yurany Hernández-Turca & Juan Manuel Julio-Román & Martha López & Juan C. , 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 90, pages 1-60, April.
    2. Ruthira Naraidoo & Vo Phuong Mai Le, 2019. "Monetary policy in a model with commodity and financial market," Working Papers 782, Economic Research Southern Africa.
    3. Restrepo-Ángel, Sergio & Rincón-Castro, Hernán & Ospina-Tejeiro, Juan J., 2022. "Multipliers of taxes and public spending in Colombia: SVAR and local projections approaches," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(3).
    4. Jean-Pierre Allegret & Antonio Lemus, 2019. "Nonlinear effects of the Chilean fiscal policy," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(3), pages 132-153, December.
    5. Sergio Restrepo-Ángel & Hernán Rincón-Castro & Juan J. Ospina-Tejeiro, 2020. "Multiplicadores de los impuestos y del gasto público en Colombia: aproximaciones SVAR y proyecciones locales," Borradores de Economia 1114, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Fiscal policy; monetary policy; interest rates; nonlinear time series;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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