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An Optimal Fiscal Policy Rule for the Colombian Economy: A Dynamic Stochastic General Equilibrium Approach

Author

Listed:
  • Juan Galvis
  • Juan Bedoya
  • Ruben Loaiza

Abstract

This paper seeks to develop an optimal fiscal policy rule for the Colombian economy that interacts with the monetary policy in order to stabilize the product and inflation gap. It proposes a Dynamic Stochastic General Equilibrium model (DSGE) with nominal rigidities and proposes a fiscal rule that depends on the debt and product gap, with the objective of isolating external shocks for the public spending gap in this case a preference shock keeping the economy away from the steady-state

Suggested Citation

  • Juan Galvis & Juan Bedoya & Ruben Loaiza, 2011. "An Optimal Fiscal Policy Rule for the Colombian Economy: A Dynamic Stochastic General Equilibrium Approach," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 75, pages 107-141.
  • Handle: RePEc:lde:journl:y:2011:i:75:p:107-141
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic Stochastic General Equilibrium; fiscal policy; monetary policy; business cycles;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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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