Chile's Structural Fiscal Surplus Rule
AbstractThe paper analyzes Chile''s structural balance fiscal rule in the face of copper price shocks originating in foreign copper demand. It uses a version of the IMF''s Global Integrated Monetary and Fiscal Model (GIMF) that includes a copper sector. Two results are obtained. First, Chile''s current fiscal rule performs well if the policymaker puts a small weight on output volatility (relative to inflation volatility) in his/her objective function. A more aggressive countercyclical fiscal rule can attain lower output volatility, but there is a trade-off with (somewhat) higher inflation volatility and (much) higher volatility of fiscal variables. Second, given its current stock of government assets, Chile''s adoption of a 0.5% surplus target starting in 2008 is desirable from a business cycle perspective. This is because the earlier 1% target would have required significant further asset accumulation that could only have been accomplished at the expense of greater volatility in fiscal instruments and therefore in GDP.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 09/88.
Date of creation: 01 Apr 2009
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-23 (All new papers)
- NEP-CBA-2009-05-23 (Central Banking)
- NEP-MAC-2009-05-23 (Macroeconomics)
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