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A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance

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  • Jean-Marc Fournier
  • Philipp Lieberknecht

Abstract

This paper presents a model-based fiscal Taylor rule and a toolkit to assess the fiscal stance, defined as the change in the structural primary balance. This is built on the normative buffer-stock model of the government (Fournier, 2019) which includes key channels like hysteresis, cycle-dependent multipliers and a risk premium. A simple fiscal Taylor rule prescribes the fiscal stance as a function of past government debt, past output gap and the past structural primary balance. Applications suggest several advanced economies could have better managed their fiscal stance over the last 20 years. Simulations provide fiscal stance recommendations over the medium-term.

Suggested Citation

  • Jean-Marc Fournier & Philipp Lieberknecht, 2020. "A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance," IMF Working Papers 2020/033, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/033
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    References listed on IDEAS

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    Cited by:

    1. Jean-Marc Fournier, 2019. "A Buffer-Stock Model for the Government: Balancing Stability and Sustainability," IMF Working Papers 2019/159, International Monetary Fund.
    2. Aldama, Pierre & Creel, Jérôme, 2022. "Real-time fiscal policy responses in the OECD from 1997 to 2018: Procyclical but sustainable?," European Journal of Political Economy, Elsevier, vol. 73(C).

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