IDEAS home Printed from https://ideas.repec.org/p/mnb/wpaper/2003-13.html
   My bibliography  Save this paper

Analyzing Fiscal Policy and Growth with a Calibrated Macro Model

Author

Listed:
  • Péter Benczúr

    () (Magyar Nemzeti Bank)

  • András Simon

    () (Magyar Nemzeti Bank)

  • Viktor Várpalotai

    () (Magyar Nemzeti Bank)

Abstract

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
    as

    Download full text from publisher

    File URL: http://www.mnb.hu/letoltes/wp2003-13v.pdf
    Download Restriction: no

    More about this item

    Keywords

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mnb:wpaper:2003/13. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lorant Kaszab). General contact details of provider: http://edirc.repec.org/data/mnbgvhu.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.