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Identifying endogenous fiscal policy rules for macroeconomic models

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Author Info
Javier J. Pérez () (Centro de Estudios Andaluces)
Paul Hiebert () (European Central Bank)

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Abstract

In this paper, we present a model-based method for identifying fiscal closure rules in stochastic macroeconomic models. The methodology is based on the stability analysis of the model at hand, with an endogenous derivation of a reaction on the part of the fiscal authority to state variables in the model. The rule achieves the dual aim of imposing solvency on the fiscal sector and generating a state-contingent dynamic adjustment in a framework consistent with the properties of the model. Up to now, fiscal rules in leading large-scale macroeconomic forecasting models have been imposed exogenously, and in this sense are not necessarily compatible with the formulation of other sectors of these models. An example of the derivation procedure, including some illustrative results, is provided using a small calibrated macro model.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2002/06.

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Length: 22 pages
Date of creation: Jul 2002
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Handle: RePEc:cea:doctra:e2002_06

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Related research
Keywords: Macroeconomic models Closure rules Fiscal policy Stability analysis

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Find related papers by JEL classification:
C5 - Mathematical and Quantitative Methods - - Econometric Modeling
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Ralph C. Bryant & Long Zhang, 1996. "Intertemporal Fiscal Policy in Macroeconomic Models: Introduction and Major Alternatives," Discussion Papers 123, Brookings Institution International Economics. [Downloadable!]
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  5. Eric M. Leeper, 1993. "The policy tango: toward a holistic view of monetary and fiscal effects," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 1-27.
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  8. Bryant, R.C. & Zhang, L., 1996. "Alternative Specifications of Intertemporal Fiscal Policy in a Small Theoretical Model," Papers 124, Brookings Institution - Working Papers.
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  9. Mitchell, Peter R. & Sault, Joanne E. & Wallis, Kenneth F., 2000. "Fiscal policy rules in macroeconomic models: principles and practice," Economic Modelling, Elsevier, vol. 17(2), pages 171-193, April. [Downloadable!] (restricted)
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  18. repec:cup:macdyn:v:1:y:1997:i:1:p:45-75 is not listed on IDEAS
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  21. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1994. "Optimal Fiscal Policy in a Business Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 617-52, August. [Downloadable!] (restricted)
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  22. Christopher A. Sims, 1989. "Solving nonlinear stochastic optimization and equilibrium problems backwards," Discussion Paper / Institute for Empirical Macroeconomics 15, Federal Reserve Bank of Minneapolis. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2007. "Fiscal forecasting - lessons from the literature and challenges," Working Paper Series 843, European Central Bank. [Downloadable!]
  2. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2004. " Fiscal and Monetary Policy Interactions in a New Keynesian Model with Liquidity Constraints," CDMA Conference Paper Series 0402, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
    Other versions:
  3. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2004. "Can Fiscal Policy Help Macroeconomic Stabilisation? Evidence from a New Keynesian Model with Liquidity Constraints," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  4. Philippe Michel & Leopold von Thadden & Jean-Pierre Vidal, 2006. "Debt stabilizing fiscal rules," Working Paper Series 576, European Central Bank. [Downloadable!]
    Other versions:
  5. Antonio Morales & Pablo Brañas Garza, 2003. "Computational Errors in Guessing Games1," Economic Working Papers at Centro de Estudios Andaluces E2003/11, Centro de Estudios Andaluces. [Downloadable!]
  6. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2003. "Fiscal and Monetary Policy Interactions: Empirical Evidence and Optimal Policy Using a Structural New Keynesian Model," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
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