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Non-Keynesian Effects of Fiscal Consolidation: An Analysis with an Estimated DSGE Model for the Hungarian Economy

  • Szilárd Benk
  • Zoltán M. Jakab

Using an estimated DSGE model for Hungary, the paper identifies the possible non-Keynesian channels through which a fiscal consolidation may manifest as expansionary. Simulations show that fiscal consolidation policies are typically contractionary. Nevertheless, taking into account some specific features of the Hungarian economy, there is a possibility that expansionary effects arise. These effects may take the form of a drop in interest rate risk premium or favourable balance sheet effects through the appreciation of the currency. However, the credibility of fiscal consolidation is key in achieving positive output effects. A non-credible consolidation is unlikely to expand output, regardless of the assumptions regarding the specific features of the economy, and regardless of the composition of a consolidation package. Les effets non-Keynésiens de l'assainissement budgétaire : une analyse avec un modèle DSGE estimé pour l'économie hongroise À partir d’un modèle d’équilibre général dynamique et stochastique (DSGE) estimé pour la Hongrie, ce papier identifie les canaux non-Keynésiens susceptibles de donner un caractère expansionniste à un assainissement budgétaire. Les simulations montrent que les politiques d’ajustement budgétaire se traduisent généralement par une contraction de l’activité. Toutefois, compte tenu de certaines caractéristiques propres à l’économie hongroise, il est probable que des effets expansionnistes surviennent. Ces effets peuvent prendre la forme d’une baisse de la prime de risque de taux d’intérêt ou d’effets de bilan favorables du fait d’une appréciation du taux de change. Cela étant, la crédibilité de l’assainissement budgétaire est indispensable pour obtenir des effets positifs sur la production. Un ajustement non crédible a peu de chances de produire de tels effets, quelles que soient les hypothèses retenues à propos des caractéristiques de l’économie et quelle que soit la composition du programme d’assainissement.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 945.

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Date of creation: 09 Mar 2012
Date of revision:
Handle: RePEc:oec:ecoaaa:945-en
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