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The Golden Rule and the Economic Cycles

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Author Info
Keiko Honjo
Abstract

The present formulation of the golden rule in the United Kingdom allows fiscal performance to be tested explicitly on an ex-post basis. However, it requires precise dating of the economic cycle, which can lead to significant controversy. Also, the need to aim for current balance or better "over the cycle" may force fiscal policy to be procyclical toward the end of cycles. Using dynamic stochastic simulations, the paper suggests that making the formulation of the golden rule forward-looking and independent of the dating of the economic cycle would reduce the risk of procyclicality and enhance macroeconomic stability.

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Publisher Info
Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/199.

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Length: 23 pages
Date of creation: 10 Aug 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/199

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Related research
Keywords: Business cycles ; Fiscal policy ;

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This paper has been announced in the following NEP Reports: 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.:
  1. Keiko Honjo & Ben Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers 06/262, International Monetary Fund. [Downloadable!]
  2. Michael Kell, 2001. "An Assessment of Fiscal Rules in the United Kingdom," IMF Working Papers 01/91, International Monetary Fund. [Downloadable!]
  3. Philippe D Karam & Douglas Laxton & Andrew Berg, 2006. "Practical Model-Based Monetary Policy Analysis--A How-To Guide," IMF Working Papers 06/81, International Monetary Fund. [Downloadable!]
  4. M Artis, 2002. "Dating the Business Cycle in Britain," Centre for Growth and Business Cycle Research Discussion Paper Series 17, Economics, The Univeristy of Manchester. [Downloadable!]
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This page was last updated on 2009-12-17.

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