Chile’s Structural Fiscal Surplus Rule: a Model-Based Evaluation
The paper analyzes Chile’s structural surplus fiscal rule in the face of shocks to the world copper price. Two results are obtained. First, Chile’s current fiscal rule performs well if the policymaker (i) puts a premium on avoiding excessive volatility in fiscal instruments, and (ii) puts a relatively small weight on output volatility relative to inflation volatility in the 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 instrument volatility. The ranking of instruments between government spending and labor income taxes depends mainly on the instrument volatility the policymaker will tolerate. Second, given its then current stock of government assets, Chile’s adoption of a 0.5% surplus target starting in 2008 was desirable 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 macroeconomic variables
Volume (Year): 13 (2010)
Issue (Month): 3 (December)
|Contact details of provider:|| Postal: |
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter N. Ireland, 1999.
"Sticky-Price Models of the Business Cycle: Specification and Stability,"
Boston College Working Papers in Economics
426, Boston College Department of Economics.
- Ireland, Peter N., 2001. "Sticky-price models of the business cycle: Specification and stability," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 3-18, February.
- Peter N. Ireland, 2000. "Sticky-Price Models of the Business Cycle: Specification and Stability," NBER Working Papers 7511, National Bureau of Economic Research, Inc.
- Laxton, Douglas & Pesenti, Paolo, 2003.
"Monetary rules for small, open, emerging economies,"
Journal of Monetary Economics,
Elsevier, vol. 50(5), pages 1109-1146, July.
- Douglas Laxton & Paolo Pesenti, 2003. "Monetary Rules for Small, Open, Emerging Economies," NBER Working Papers 9568, National Bureau of Economic Research, Inc.
- Blanchard, Olivier J, 1985.
"Debt, Deficits, and Finite Horizons,"
Journal of Political Economy,
University of Chicago Press, vol. 93(2), pages 223-47, April.
- Michael Kumhof & Douglas Laxton, 2009. "Simple, Implementable Fiscal Policy Rules," IMF Working Papers 09/76, International Monetary Fund.
- Enrique G. Mendoza, 2006.
"Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies,"
IMF Working Papers
06/88, International Monetary Fund.
- Enrique G. Mendoza, 2005. "Real Exchange Rate Volatility and the Price of Nontradables in Sudden-Stop-Prone Economies," NBER Working Papers 11691, National Bureau of Economic Research, Inc.
- Michael Kumhof & Dirk Muir & Carlos de Resende & Jan in â€˜t Veld & RenÃ© Lalonde & Davide Furceri & Annabelle Mourougane & John Roberts & Stephen Snudden & Mathias Trabandt & GÃ¼nter Coenen & Susanna, 2010.
"Effects of Fiscal Stimulus in Structural Models,"
IMF Working Papers
10/73, International Monetary Fund.
- G�nter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & Ren� Lalonde & Douglas Laxton & Jesper Lind� & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Carlos d, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
- Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary Fiscal Shocks and the US Trade Deficit," International Finance, Wiley Blackwell, vol. 8(3), pages 363-397, December.
- Thomas Laubach, 2003.
"New evidence on the interest rate effects of budget deficits and debt,"
Finance and Economics Discussion Series
2003-12, Board of Governors of the Federal Reserve System (U.S.).
- Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, 06.
- Juan de Dios Tena & Cesar Salazar, 2007.
"Explaining inflation and output volatility in Chile : an empirical analysis of forty years,"
Statistics and Econometrics Working Papers
ws071505, Universidad Carlos III, Departamento de Estadística y Econometría.
- Juan de Dios Tena & César Salazar, 2008. "Explaining inflation and output volatility in Chile: an empirical analysis of forty years," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
- Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard & Eric M. Engen, 2004. "Federal Government Debt and Interest Rates," Working Papers 50018, American Enterprise Institute.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Christopher Erceg & Luca Guerrieri, 2005.
"Expansionary Fiscal Shocks and the Trade Deficit,"
Computing in Economics and Finance 2005
128, Society for Computational Economics.
- Yongsung Chang & Sun-Bin Kim, 2005. "On the aggregate labor supply," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 21-37.
- Carlos Garcia & Jorge Restrepo & Evan Tanner, 2007. "Designing fiscal rules for commodity exporters," ILADES-Georgetown University Working Papers inv199, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Juan Pablo Medina & Claudio Soto, 2007. "Copper Price, Fiscal Policu and Business Cycle in Chile," Working Papers Central Bank of Chile 458, Central Bank of Chile.
- Carlos Garcia & Jorge Restrepo, 2007. "The Case for a Countercyclical Rule-based Fiscal Regime," ILADES-Georgetown University Working Papers inv183, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
When requesting a correction, please mention this item's handle: RePEc:chb:bcchec:v:13:y:2010:i:3:p:5-32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda)
If references are entirely missing, you can add them using this form.