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Myths and Maths: Macroeconomic Effects of Fiscal Adjustments in Hungary

Author

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  • Balázs Párkányi

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In the short term, the primary effects of a fiscal adjustment most frequently cause a downturn in economic output, although it may also produce stimulating, secondary effects, as well. In relation to this, with the help of an estimated model based on Hungarian data, we analysed how the macroeconomic effects of a fiscal adjustment depend on the type of measures and examined the Hungarian relevance of other effects not definable within the model. We established that in the short term the stimulating effects are not likely to fully compensate for the losses, yet their relevance may increase in the medium and long term. In most cases – depending on the structure of adjustment – the central bank has the option of loosening, but in certain cases, fiscal and monetary policies may be in conflict with each other, due to evolving inflationary pressure.

Suggested Citation

  • Balázs Párkányi, 2006. "Myths and Maths: Macroeconomic Effects of Fiscal Adjustments in Hungary," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(1), pages 34-40, June.
    • Handle: RePEc:mnb:bullet:v:1:y:2006:i:1:p:34-40
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    File URL: http://www.mnb.hu/letoltes/mnb-bull-2006-06-balazs-parkanyi.pdf
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    Citations

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    Cited by:

    1. Gábor P. Kiss, 2007. "Pain or Gain? Short-term Budgetary Effects of Surprise Inflation - the Case of Hungary," MNB Occasional Papers 2007/61, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Mr. Alejandro D Guerson, 2013. "The Composition of Fiscal Consolidation Matters: Policy Simulations for Hungary," IMF Working Papers 2013/207, International Monetary Fund.

    More about this item

    Keywords

    Keynesian; non-Keynesian effects; expansionary fiscal adjustments; monetary policy reactions; model simulations.;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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