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A structural var approach to estimating budget balance targets

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  • Robert Buckle
  • Kunhong Kim
  • Julie Tam

Abstract

The Fiscal Responsibility Act 1994 states that, as a principle of responsible fiscal management, a New Zealand government should ensure total Crown debt is at a prudent level by ensuring total operating expenses do not exceed total operating revenues. In this paper a structural VAR model is estimated to evaluate the impact on the government's cash operating surplus (or budget balance) of four independent disturbances: supply, fiscal, real private demand, and nominal disturbances. Based on the distribution of these disturbances, stochastic simulations are undertaken to derive the level of the ex ante cash budget balance needed to achieve an actual cash budget balance, at a given level of probability, at some future time horizon.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal New Zealand Economic Papers.

Volume (Year): 36 (2002)
Issue (Month): 2 ()
Pages: 149-175

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Handle: RePEc:taf:nzecpp:v:36:y:2002:i:2:p:149-175

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References

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  1. Fisher, Lance A, 1996. "Sources of Exchange Rate and Price Level Fluctuations in Two Commodity Exporting Countries: Australia and New Zealand," The Economic Record, The Economic Society of Australia, vol. 72(219), pages 345-58, December.
  2. Olivier J. Blanchard & Mark W. Watson, 1986. "Are Business Cycles All Alike?," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 123-180 National Bureau of Economic Research, Inc.
  3. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  4. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
  5. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Publishing.
  6. Fisher, L. & Fackler, P. & Orden, D., 1992. "Long-Run Identifying Restrictions for an Error-Correction Model of New Zealand Money, Prices and Output," Papers 92-27, New South Wales - School of Economics.
  7. Gali, Jordi, 1992. "How Well Does the IS-LM Model Fit Postwar U.S. Data," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 709-38, May.
  8. Paul Conway, 1998. "Macroeconomic variability in New Zealand: An SVAR study," New Zealand Economic Papers, Taylor & Francis Journals, vol. 32(2), pages 161-186.
  9. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  11. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
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Cited by:
  1. John Creedy & Grant M Scobie, 2002. "Population Ageing and Social Expenditure in New Zealand: Stochastic Projections," Treasury Working Paper Series 02/28, New Zealand Treasury.
  2. Angela Barnes & Steve Leith, 2001. "Budget Management That Counts: Recent Approaches to Budget and Fiscal Management in New Zealand," Treasury Working Paper Series 01/24, New Zealand Treasury.
  3. Robert A Buckle & Amy A Cruickshank, 2013. "The Requirements for Long-Run Fiscal Sustainability," Treasury Working Paper Series 13/20, New Zealand Treasury.
  4. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
  5. Iris Claus & Aaron Gill & Boram Lee & Nathan McLellan, 2006. "An empirical investigation of fiscal policy in New Zealand," Treasury Working Paper Series 06/08, New Zealand Treasury.

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