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Effectiveness versus reliability of policy actions under government budget constraint: the case of France

Author

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  • Bianchi, Carlo
  • Brillet, Jean-Louis
  • Calzolari, Giorgio

Abstract

The evaluation of policy actions by means of a large scale econometric model often begins with the analysis of multipliers. A large value of a multiplier, with the right sign, suggests that the policy instrument should be very effective in moving up or down the given target variable. However, government budget usually imposes some constraints on the policy action, so that the important criterion should not be the raw multiplier but a trade-off criterion which measures the effect of a variation of the Instrument associated with a given cost in terms of government deficit: in other words a trade-off criterion. The larger the trade-off criterion, the more effective is expected to be the policy action. Effectiveness cannot, however, be the only guideline for the decision maker. The trade-off criterion which is computed from the macroeconomic model is obviously affected by uncertainty to some extent; a criterion which appears to be strongly effective might at the same time be affected by a high degree of uncertainty as to recommend against its use.

Suggested Citation

  • Bianchi, Carlo & Brillet, Jean-Louis & Calzolari, Giorgio, 1985. "Effectiveness versus reliability of policy actions under government budget constraint: the case of France," MPRA Paper 29055, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29055
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    References listed on IDEAS

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    1. Bianchi, Carlo & Calzolari, Giorgio & Corsi, Paolo, 1981. "Estimating asymptotic standard errors and inconsistencies of impact multipliers in nonlinear econometric models," Journal of Econometrics, Elsevier, vol. 16(3), pages 277-294, August.
    2. Amemiya, Takeshi, 1983. "Non-linear regression models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 6, pages 333-389, Elsevier.
    3. Bianchi, Carlo & Brillet, Jean-Louis & Calzolari, Giorgio, 1984. "Analyse et mesure de l'incertitude en prevision d'un modele econometrique. Application au modele mini-DMS [Analysis and measurement of forecast uncertainty in an econometric model. Application to m," MPRA Paper 22565, University Library of Munich, Germany, revised 1984.
    4. Brundy, James M & Jorgenson, Dale W, 1971. "Efficient Estimation of Simultaneous Equations by Instrumental Variables," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 207-224, August.
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    Cited by:

    1. Bianchi, Carlo & Brillet, Jean-Louis & Calzolari, Giorgio, 1986. "Forecasts and constraints on policy actions: the reliability of alternative instruments," MPRA Paper 29119, University Library of Munich, Germany.

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    More about this item

    Keywords

    Macroeconometric model; French economy; stochastic simulation; multipliers; trade-off criteria; budget constraint; asymptotic standard errors;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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