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Non-Ricardian Aspects of Fiscal Policy in Chile

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  • Luis Felipe Céspedes
  • Jorge Fornero
  • Jordi Galí

Abstract

This paper examines non-Ricardian effects of government spending shocks in the Chilean economy. We first provide evidence on those effects based on vector autoregressions. We then show that such evidence can be accounted for by a model that features: (i) a sizeable share of non-Ricardian households (i.e. households which do not make use of financial markets and just consume their current labor income); (ii) nominal price and wage rigidities; (iii) an inflation targeting scheme, and (iv) a structural balance fiscal rule that represents the particular Chilean fiscal rule. The model is estimated employing Bayesian techniques. Finally, we use model simulations to demonstrate the countercyclical effects of the Chilean fiscal rule as compared with a zero-deficit rule.

Suggested Citation

  • Luis Felipe Céspedes & Jorge Fornero & Jordi Galí, 2012. "Non-Ricardian Aspects of Fiscal Policy in Chile," Working Papers Central Bank of Chile 663, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:663
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    References listed on IDEAS

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    1. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, pages 559-585.
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    10. Rodrigo Alfaro & Natán Goldberger, 2012. "Cubrir o no Cubrir: ¿Ese es el Dilema?," Working Papers Central Bank of Chile 662, Central Bank of Chile.
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    Citations

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    Cited by:

    1. José De Gregorio & Felipe Labbé, 2011. "Copper, the Real Exchange Rate and Macroeconomic Fluctuations in Chile," Working Papers Central Bank of Chile 640, Central Bank of Chile.
    2. Luis Felipe Céspedes & Jorge A. Fornero & Jordi Galí, 2013. "Non-Ricardian Aspects of Fiscal Policy in Chile," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Felipe Céspedes & Jordi Galí (ed.), Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 8, pages 283-322 Central Bank of Chile.
    3. Jimena Zúñiga & Marcelo Capello & Inés Butler & Nester Grión, 2013. "A Cycle-Adjusted Fiscal Rule for Sustainable and More Equitable Growth in Argentina," IDB Publications (Working Papers) 82358, Inter-American Development Bank.
    4. Fuentes H., Fernando & García, Carlos J., 2016. "The business cycle and copper mining in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    5. García-Cicco, Javier & Kawamura, Enrique, 2015. "Dealing with the Dutch disease: Fiscal rules and macro-prudential policies," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 205-239.
    6. Jimena Zúñiga & Marcelo Capello & Inés Butler & Nester Grión, 2013. "A Cycle-Adjusted Fiscal Rule for Sustainable and More Equitable Growth in Argentina," IDB Publications (Working Papers) 4638, Inter-American Development Bank.
    7. Martha López, 2016. "Fiscal Multipliers, Oil Revenues and Balance Sheet Effects," Borradores de Economia 976, Banco de la Republica de Colombia.
    8. Carlos Garcia & Pablo Gonzalez & Antonio Moncado, 2010. "Proyecciones Macroeconómicas en Chile: Una Aproximación Bayesiana," ILADES-Georgetown University Working Papers inv262, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    9. Carlos J. García & Pablo González M. & Antonio Moncado S., 2013. "Macroeconomic Forecasting in Chile: a Structural Bayesian Approach," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 24-63, April.
    10. Jorge Puig, 2014. "Multiplicador del gasto público en Argentina," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 60, pages 188-210, January-D.
    11. Jorge Fornero & Markus Kirchner, 2014. "Learning About Commodity Cycles and Saving- Investment Dynamics in a Commodity-Exporting Economy," Working Papers Central Bank of Chile 727, Central Bank of Chile.
    12. Juan A. Correa & Christian Ferrada & Pablo Gutiérrez & Francisco Parro, 2014. "Effects of fiscal policy on private consumption: evidence from structural-balance fiscal rule deviations," Applied Economics Letters, Taylor & Francis Journals, vol. 21(11), pages 776-781, July.
    13. García-Cicco, Javier & Kawamura, Enrique, 2015. "Dealing with the Dutch disease: Fiscal rules and macro-prudential policies," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 205-239.

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