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A Taylor Rule for Fiscal Policy

Author

Listed:
  • D.A. Kendrick
  • H.M. Amman

Abstract

In times of rapid macroeconomic change it would seem useful for both fiscal and monetary policy to be modified frequently. This is true for monetary policy with monthly meetings of the Open Market Committee. It is not true for fiscal policy which mostly varies with the annual Congressional budget cycle. This paper proposes a feedback framework for analyzing the question of whether or not movement from annual to quarterly fiscal policy changes would improve the performance of stabilization policy. More broadly the paper considers a complementary rather than competitive framework in which monetary policy in the form of the Taylor rule is joined by a similar fiscal policy rule. This framework is then used to consider methodological improvements in the Taylor and the fiscal policy rule to include lags, uncertainty in parameters and measurement errors.

Suggested Citation

  • D.A. Kendrick & H.M. Amman, 2011. "A Taylor Rule for Fiscal Policy," Working Papers 11-17, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:1117
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    File URL: https://dspace.library.uu.nl/bitstream/handle/1874/309597/11_17.pdf
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    References listed on IDEAS

    as
    1. Coenen, Gunter & Levin, Andrew & Wieland, Volker, 2005. "Data uncertainty and the role of money as an information variable for monetary policy," European Economic Review, Elsevier, vol. 49(4), pages 975-1006, May.
    2. Amman, Hans M & Kendrick, David A, 1999. "Should Macroeconomic Policy Makers Consider Parameter Covariances?," Computational Economics, Springer;Society for Computational Economics, vol. 14(3), pages 263-267, December.
    3. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
    4. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Cited by:

    1. Przybylska-Mazur Agnieszka, 2018. "Types of Government Deficit in Respect of Fiscal Decision-Making," Financial Sciences. Nauki o Finansach, Sciendo, vol. 23(2), pages 60-74, June.

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    Keywords

    design of fiscal policy; optimal experimentation; stochastic optimization; time-varying parameters; numerical experiments;
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