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Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents

Author

Listed:
  • Andrés González
  • Martha Rosalba López Piñeros
  • Norberto Rodríguez
  • Santiago Téllez

Abstract

In this paper we develop a dynamic stochastic general equilibrium fiscal model for the Colombian economy. The model has three main components: the existence of non-Ricardian households, price and wage rigidities, and a fiscal authority that finances government spending partly with public debt. The model is calibrated to capture the empirical evidence on the macroeconomic effects of government spending and it is used to study the effect of an oil price shock under different fiscal policy rules. Our results show that fiscal multipliers in Colombia are positive in a way consistent with the evidence. Our analysis also shows that a structural fiscal rule delivers a better outcome in terms of macroeconomic volatility relative to a balanced budget rule or a countercyclical fiscal rule.

Suggested Citation

  • Andrés González & Martha Rosalba López Piñeros & Norberto Rodríguez & Santiago Téllez, 2013. "Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents," Borradores de Economia 10483, Banco de la Republica.
  • Handle: RePEc:col:000094:010483
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    2. Aarón Garavito A. & Ana María Iregui B. & María Teresa Ramírez G., 2012. "Inversión Extranjera Directa en Colombia: Evolución reciente y marco normativo," Borradores de Economia 713, Banco de la Republica de Colombia.
    3. Ignacio Lozano & Karen Rodríguez, 2011. "Assessing the macroeconomic effects of fiscal policy in Colombia," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 3(3), pages 206-228, August.
    4. Hamann-Salcedo, Franz Alonso & Lozano-Espitia, Luis Ignacio & Mejía, Luis Fernando, 2012. "Sobre el impacto macroeconómico de los beneficios tributarios al capital," Chapters, in: Arango-Thomas, Luis Eduardo & Hamann-Salcedo, Franz Alonso (ed.), El mercado de trabajo en Colombia : hechos, tendencias e instituciones, chapter 6, pages 253-288, Banco de la Republica de Colombia.
    5. Andrea Colciago, 2011. "Rule‐of‐Thumb Consumers Meet Sticky Wages," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(2‐3), pages 325-353, March.
    6. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    7. Mr. Douglas Laxton & Susanna Mursula & Mr. Michael Kumhof & Mr. Dirk V Muir, 2010. "The Global Integrated Monetary and Fiscal Model (GIMF) – Theoretical Structure," IMF Working Papers 2010/034, International Monetary Fund.
    8. Leopoldo Fergusson, 2003. "Tributación, Crecimiento Y Bienestar: El Caso Colombiano(1970-1999)," Documentos CEDE 3662, Universidad de los Andes, Facultad de Economía, CEDE.
    9. Andrea Colciago, 2006. "Sticky wages and rule of thumb consumers," Working Papers 98, University of Milano-Bicocca, Department of Economics, revised Sep 2006.
    10. Franz Alonso Hamann Salcedo & Luis Ignacio Lozano Espitia & Luis -Fernando Mejía, 2011. "Sobre el impacto macroeconómico de los beneficios tributarios al capital," Borradores de Economia 8952, Banco de la Republica.
    11. Mr. Michael Kumhof & Mr. Douglas Laxton, 2009. "Simple, Implementable Fiscal Policy Rules," IMF Working Papers 2009/076, International Monetary Fund.
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    Cited by:

    1. Paula Andrea Beltrán-Saavedra, 2015. "Precio del petróleo y el ajuste de las tasas de interés en las economías emergentes," Borradores de Economia 13619, Banco de la Republica.
    2. Hernán Rincón & Diego Rodríguez & Jorge Toro & Santiago Téllez, 2017. "FISCO: modelo fiscal para Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(83), pages 161-187, June.
    3. 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.
    4. Jose U. Mora & Celso J. Costa Junior, 2019. "FDI Asymmetries in Emerging Economies: The Case of Colombia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(8), pages 1-35, August.
    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.

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    More about this item

    Keywords

    Fiscal multipliers; fiscal policy rules; non-Ricardian households; DSGE model.;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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