Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model
In an earlier paper, i.e. Kendrick and Amman (2010) we raised the question of whether adjusting fiscal policy more frequently than its current pace of once a year could be used to improve stabilization. Also, we proposed a method for shedding light on that question by using a small macroeconometric model in a quadratic linear tracking stochastic control framework with an implicit feedback rule to compare a scenario in which fiscal policy was changed quarterly to a scenario in which it was only changed once a year. In this paper we first report on the use of counterfactual experiments in the 2007 thru 2010 period of a major downturn in the economy. We find in one experiment that quarterly changes in policy stabilize output levels in the economy better than annual changes with a slightly larger increase in debt over the counterfactual period. In a second experiment we find that when weight changes are used to get roughly equal stabilization results, the increase in the debt level is substantially less with quarterly than with annual policy changes. In the second part of the paper we repeat the two experiments but do so in a Monte Carlo framework. The results in this more general framework also point the way to a finding that a relatively simple shift from annual to quarterly fiscal policy could provide either better stabilization results with a slightly larger increase in the debt level or similar stabilization results but with a smaller increase in the debt level.
|Date of creation:||Feb 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +1 (512) 471-3211
Fax: +1 (512) 471-3510
Web page: http://www.utexas.edu/cola/depts/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans Amman & David Kendrick, 2000.
"Mitigation Of The Lucas Critique With Stochastic Control Methods,"
Computing in Economics and Finance 2000
182, Society for Computational Economics.
- Amman, Hans M. & Kendrick, David A., 2003. "Mitigation of the Lucas critique with stochastic control methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11), pages 2035-2057.
- Amman, Hans M. & Kendrick, David A., 2003. "Mitigation of the Lucas critique with stochastic control methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2035-2057, September.
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, October.
- John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
- Amman, Hans & Kendrick, David, 1999.
"Linear-Quadratic Optimization For Models With Rational Expectations,"
Cambridge University Press, vol. 3(04), pages 534-543, December.
- Hans M. Amman & David A. Kendrick, 1997. "Linear Quadratic Optimization for Models with Rational Expectations," CARE Working Papers 9708, The University of Texas at Austin, Center for Applied Research in Economics.
- Kenneth Garbade, 1975. "Macroeconomics: Discretion in the Choice of Macroeconomic Policies," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 2, pages 215-238 National Bureau of Economic Research, Inc.
- Deissenberg, Christophe, 1979.
"Optimal control of linear econometric models with intermittent controls,"
Discussion Papers, Series I
127, University of Konstanz, Department of Economics.
- Deissenberg, Christophe, 1980. " Optimal Control of Linear Econometric Models with Intermittent Controls," Economic Change and Restructuring, Springer, vol. 16(1), pages 49-56.
- John B. Taylor, 1998.
"An Historical Analysis of Monetary Policy Rules,"
NBER Working Papers
6768, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:tex:wpaper:130208. 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: (Caroline Thomas)
If references are entirely missing, you can add them using this form.