IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Fiscal Consolidation and the Probability Distribution of Deficits: A Stochastic Analysis of the Stability Pact

  • A J Hughes Hallett
  • Peter McAdam

    ()

Using stochastic simulations, this paper analyses the probability distribution of a country's deficit ratio under fixed exchange rates and a variety of monetary policy rules. The purpose is to show how the probability of getting an "excessive deficit", defined as a deficit / GDP ratio in excess of 3% by Europe's Stability Pact, varies with different deficit target rules and different fiscal and monetary policy rules. We find that these fiscal ratios typically have a wide distribution, with fat tails and significantly longer tails on the upper side. That means fiscal targets may have to be country specific and conservative, and that fiscal policy has to be forward looking to keep the probability of excessive deficits below acceptable limits.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0101.pdf
Download Restriction: no

Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 0101.

as
in new window

Length:
Date of creation: Jan 2001
Date of revision:
Handle: RePEc:ukc:ukcedp:0101
Contact details of provider: Postal: School of Economics, University of Kent, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

Order Information: Email:


References listed on IDEAS
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.:

as in new window
  1. Hamid Faruqee & Douglas Laxton & Bart Turtelboom & Peter Isard & Eswar Prasad, 1998. "Multimod Mark III; The Core Dynamic and Steady State Model," IMF Occasional Papers 164, International Monetary Fund.
  2. repec:sae:niesru:v:164:y::i:1:p:90-99 is not listed on IDEAS
  3. Salmon, Mark, 1982. "Error Correction Mechanisms," The Warwick Economics Research Paper Series (TWERPS) 199, University of Warwick, Department of Economics.
  4. Michael J. Artis & Marco Buti, 2000. "Close to Balance or in Surplus. A Policy Maker’s Guide to the Implementation of the Stability and Growth Pact," EUI-RSCAS Working Papers 28, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  5. Paul R. Masson & Bart Turtelboom, 1997. "Characteristics of the Euro, the Demand for Reserves, and Policy Coordination Under EMU," IMF Working Papers 97/58, International Monetary Fund.
  6. Juillard, Michel & Laxton, Douglas & McAdam, Peter & Pioro, Hope, 1998. "An algorithm competition: First-order iterations versus Newton-based techniques," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1291-1318, August.
  7. Mitchell, Peter R. & Sault, Joanne E. & Smith, Peter N. & Wallis, Kenneth F., 1998. "Comparing global economic models," Economic Modelling, Elsevier, vol. 15(1), pages 1-48, January.
  8. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  9. McAdam, Peter & Hughes Hallett, A J, 1999. " Nonlinearity, Computational Complexity and Macroeconomic Modelling," Journal of Economic Surveys, Wiley Blackwell, vol. 13(5), pages 577-618, December.
  10. Mitchell, Peter R. & Sault, Joanne E. & Wallis, Kenneth F., 2000. "Fiscal policy rules in macroeconomic models: principles and practice," Economic Modelling, Elsevier, vol. 17(2), pages 171-193, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:0101. 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: (Tracey Girling)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.