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Analyzing Fiscal Policy and Growth with a Calibrated Macro Model


  • Péter Benczúr

    () (Magyar Nemzeti Bank)

  • András Simon

    () (Magyar Nemzeti Bank)

  • Viktor Várpalotai

    () (Magyar Nemzeti Bank)


CEE countries experience a catching up period in economic growth while preparing for accession to the European Union. In several countries we experience an expenditure boom arising either from exuberant expectations of consumers towards EU or EM or a fiscal deficit usually underpinned by an argument that a reallocation of total consumption at the expense of the future is a result of intertemporal optimization. The paper analyses whether this argument is justifiable. The key factors that influence the intertemporal trade-off are country risk and externalities from foreign direct investments. High indebtedness increases macroeconomic risk and discourages investments. If investment externalities exist the investment gap may cause high output loss. With careful calibration of the parameters determining the risk premium and the external effects of FDI the model predicts a 20% annual return of fiscal austerity at the macro level. This number is too high to be justifiable by any reasonable rate of time preference.

Suggested Citation

  • Péter Benczúr & András Simon & Viktor Várpalotai, 2003. "Analyzing Fiscal Policy and Growth with a Calibrated Macro Model," MNB Working Papers 2003/13, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:wpaper:2003/13

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    More about this item


    Catching-up; Risk Premium; FDI; Consumption boom; Simulation.;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


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