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Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model


  • David Kendrick


  • George Shoukry



In an earlier paper, i.e. Kendrick and Amman (A Taylor Rule for fiscal policy?, 2010 ), we raised the question of whether adjusting fiscal policy more frequently than its current pace of once a year could be used to improve stabilization. Also, we proposed a method for shedding light on that question by using a small macroeconometric model in a quadratic linear tracking stochastic control framework with an implicit feedback rule to compare a scenario in which fiscal policy was changed quarterly to a scenario in which it was only changed once a year. In this paper we first report on the use of counterfactual experiments in the 2007–2010 period of a major downturn in the economy. We find in one experiment that quarterly changes in policy stabilize output levels in the economy better than annual changes with a slightly larger increase in debt over the counterfactual period. In a second experiment we find that when weight changes are used to get roughly equal stabilization results, the increase in the debt level over the counterfactual periods is substantially less with quarterly than with annual policy changes. In the second part of the paper we repeat the two experiments but do so in a Monte Carlo framework. The results in this more general framework also point the way to a finding that a relatively simple shift from annual to quarterly fiscal policy could provide either better stabilization results with a slightly larger increase in the debt level or similar stabilization results but with a smaller increase in the debt level. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • David Kendrick & George Shoukry, 2014. "Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 269-293, October.
  • Handle: RePEc:kap:compec:v:44:y:2014:i:3:p:269-293
    DOI: 10.1007/s10614-013-9389-4

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    References listed on IDEAS

    1. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14, National Bureau of Economic Research, Inc.
    2. Deissenberg, Christophe, 1980. "Optimal Control of Linear Econometric Models with Intermittent Controls," Economic Change and Restructuring, Springer, vol. 16(1), pages 49-56.
    3. Kenneth Garbade, 1975. "Macroeconomics: Discretion in the Choice of Macroeconomic Policies," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 2, pages 215-238, National Bureau of Economic Research, Inc.
    4. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
    5. Amman, Hans M. & Kendrick, David A., 2003. "Mitigation of the Lucas critique with stochastic control methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11), pages 2035-2057.
    6. Amman, Hans & Kendrick, David, 1999. "Linear-Quadratic Optimization For Models With Rational Expectations," Macroeconomic Dynamics, Cambridge University Press, vol. 3(4), pages 534-543, December.
    7. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, June.
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    Cited by:

    1. Hudgins, David & Crowley, Patrick M., 2017. "Modelling a small open economy using a wavelet-based control model," Research Discussion Papers 32/2017, Bank of Finland.
    2. David Hudgins & Joon Na, 2016. "Entering H $$^{\infty }$$ ∞ -Optimal Control Robustness into a Macroeconomic LQ-Tracking Model," Computational Economics, Springer;Society for Computational Economics, vol. 47(2), pages 121-155, February.
    3. Crowley, Patrick M. & Hudgins, David, 2019. "U.S. Macroeconomic Policy Evaluation in an Open Economy Context using Wavelet Decomposed Optimal Control Methods," Research Discussion Papers 11/2019, Bank of Finland.
    4. Ilias Kostarakos & Stelios Kotsios, 2018. "Fiscal Policy Design in Greece in the Aftermath of the Crisis: An Algorithmic Approach," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 893-911, April.
    5. Crowley, Patrick M. & Hudgins, David, 2017. "Wavelet-based monetary and fiscal policy in the Euro area," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 206-231.
    6. Crowley, Patrick M. & Hudgins, David, 2015. "Fiscal policy tracking design in the time–frequency domain using wavelet analysis," Economic Modelling, Elsevier, vol. 51(C), pages 502-514.
    7. David Hudgins & Patrick M. Crowley, 2019. "Stress-Testing U.S. Macroeconomic Policy: A Computational Approach Using Stochastic and Robust Designs in a Wavelet-Based Optimal Control Framework," Computational Economics, Springer;Society for Computational Economics, vol. 53(4), pages 1509-1546, April.
    8. Crowley, Patrick M. & Hudgins, David, 2015. "Euro area monetary and fiscal policy tracking design in the time-frequency domain," Research Discussion Papers 12/2015, Bank of Finland.
    9. Patrick M. Crowley & David Hudgins, 2018. "What is the right balance between US monetary and fiscal policy? Explorations using simulated wavelet-based optimal tracking control," Empirical Economics, Springer, vol. 55(4), pages 1537-1568, December.
    10. repec:bof:bofrdp:urn:nbn:fi:bof-201508131350 is not listed on IDEAS
    11. Crowley, Patrick M. & Hudgins, David, 2016. "Analysis of the balance between U.S. monetary and fiscal policy using simulated wavelet-based optimal tracking control," Research Discussion Papers 21/2016, Bank of Finland.
    12. Ilias Kostarakos & Stelios Kotsios, 2017. "Feedback policy rules for government spending: an algorithmic approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 6(1), pages 1-10, December.

    More about this item


    Fiscal policy; Stochastic control; Economic stochastic control models; Feedback rules; Macroeconomics; Stabilization policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques


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