Intertemporal Fiscal Policy in Macroeconomic Models: Introduction and Major Alternatives
AbstractThe research reported in this set of three working papers focuses on different assumptions about the intertemporal behavior of government policymakers. In particular, we carefully study alternative specifications of intertemporal fiscal closure rules and their impacts on the effectiveness of macroeconomic policies. In this first paper, we introduce the subject, make general observations about policy reaction functions, and then identify the main possibilities for intertemporal fiscal closure rules. We concentrate on the alternative types of fiscal rule that have so far been introduced into existing empirical macroeconomic models. The second paper in the series uses a small growth model to study the theoretical implications of these intertemporal rules. A third paper describes a two-region empirical macroeconomic model based on the equations for the United States in the IMF staff's multicountry model, MULTIMOD, and reports simulation results of the alternative fiscal closure rules implemented in that abridgement of MULTIMOD. The research highlights the conclusion that, in a macroeconomic model of any type, the consequences for national economies of a shock or policy action can be significantly conditioned by the intertemporal fiscal reaction function used in the model. The point applies to all time horizons -- the short and medium runs as well as the long-run steady state. Builders and users of macroeconomic models thus need to pay more careful attention to fiscal reaction functions than they typically have in the past.
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Bibliographic InfoPaper provided by Brookings Institution International Economics in its series Discussion Papers with number 123.
Date of creation: 1996
Date of revision:
Other versions of this item:
- Bryant, R.C. & Zhang, L., 1996. "Intertemporal Fiscal Policy in Macro-Economic Models: Introduction and Major Alternatives," Papers 123, Brookings Institution - Working Papers.
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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- Philippe Michel & Leopold Von Thadden & Jean-Pierre Vidal, 2010.
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- Perez, Javier J. & Hiebert, Paul, 2004. "Identifying endogenous fiscal policy rules for macroeconomic models," Journal of Policy Modeling, Elsevier, vol. 26(8-9), pages 1073-1089, December.
- Pérez, Javier J. & Hiebert, Paul, 2002. "Identifying endogenous fiscal policy rules for macroeconomic models," Working Paper Series 0156, European Central Bank.
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