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A tool for fiscal policy planning in a medium-term fiscal framework: The FMM-MTFF model

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  • Suescun, Rodrigo

Abstract

This paper describes the FMM-MTFF model, a dynamic stochastic general equilibrium model developed to support the implementation of a Medium-Term Fiscal Framework (MTFF) in emerging market and developing economies. The model exhibits the following features. First, fiscal policy is defined in terms of multi-year fiscal plans, instead of restricting attention to univariate, single-period fiscal shocks. Second, the model temporarily deactivates the fiscal rule to avoid forcing fiscal policy to be mechanically countercyclical and sustainable. Third, the model is calibrated to match a three-sector, stylized version of a country’s input-output table, and finally, the model uses a chain-weighted procedure to measure GDP, a method consistent with what national account compilers do. The model is calibrated to Colombian and Peruvian data to illustrate the use of the model as a tool to quantify the scale of the fiscal challenges, to provide consistent medium-term macro fiscal projections and to assess the quantitative implications of past reforms and alternative fiscal policy plans on the economies, i.e., the typical questions of interest to an MTFF.

Suggested Citation

  • Suescun, Rodrigo, 2020. "A tool for fiscal policy planning in a medium-term fiscal framework: The FMM-MTFF model," Economic Modelling, Elsevier, vol. 88(C), pages 431-446.
  • Handle: RePEc:eee:ecmode:v:88:y:2020:i:c:p:431-446
    DOI: 10.1016/j.econmod.2019.09.053
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    More about this item

    Keywords

    Commodity boom; Developing countries; Fiscal policy; Fiscal policy plans; Medium-term fiscal framework; Natural resources;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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