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How small should an economy's fiscal deficit be? - a monetary programming approach

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  • Beckerman,Paul E.

Abstract

The author describes a spread-sheet planning model to help determine the government deficit consistent with a policymaker's"vector"of principal macroeconomic objectives (including real GDP growth, inflation, exchange rate, and international reserve accumulation). The model focuses on the monetary accounts, applying balance-of-payments forecasts formulated separately, but based on the same macroeconomic objectives. The model is a consistency exercise, intended as part of a broader consistency exercise for a given macro-economy. It offers one more perspective on the question of how large a government deficit should be - a perspective that can be used in conjunction with others. For each forecast period, the model determines consistent period-end and period-average stocks for the economy's outstanding central bank assets, and liabilities and, government obligations. I applies forecasting assumptions about interest rates to forecast central bank profit-and-loss flows, and takes account of these in determining the overall flow of resources that would be available to finance the government deficit. An annex describes a (purely illustrative) simulation carried out during 1999 for Ecuador.

Suggested Citation

  • Beckerman,Paul E., 2000. "How small should an economy's fiscal deficit be? - a monetary programming approach," Policy Research Working Paper Series 2308, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2308
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    References listed on IDEAS

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    1. Aquiles A. Almansi & Carlos A. Rodríguez, 1990. "Reforma Monetaria y Financiera en Hiperinflación," CEMA Working Papers: Serie Documentos de Trabajo. 67, Universidad del CEMA.
    2. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    3. Mr. Alfredo Mario Leone, 1993. "Institutional and Operational Aspects of Central Bank Losses," IMF Policy Discussion Papers 1993/014, International Monetary Fund.
    4. Beckerman, Paul, 1997. "Central-bank decapitalization in developing economies," World Development, Elsevier, vol. 25(2), pages 167-178, February.
    5. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, December.
    6. Le Houerou, Philippe & Sierra, Hector, 1993. "Estimating quasi-fiscal deficits in a consistency framework : the case of Madagascar," Policy Research Working Paper Series 1105, The World Bank.
    7. Eyzaguirre, Nicolás & Larrañaga, Osvaldo, 1990. "Macroeconomía de las operaciones cuasi fiscales en Chile," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 33542, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Cukierman Alex, 1992. "CENTRAL BANK STRATEGY, CREDIBILITY, AND INDEPENDANCE: THEORY AND EVIDENCE: Compte Rendu par Dominique Cariofillo," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 581-590, December.
    9. Mr. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 1997/083, International Monetary Fund.
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    Cited by:

    1. Nicolas Ponty, 2005. "Un modèle MAcroDYNamique des économies des pays membres de l’UEMOA : MADYN," Documents de travail 118, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV.
    2. Christian A. Emini & Hippolyte Fofack, 2004. "A financial social accounting matrix for the integrated macroeconomic model for poverty analysis : application to Cameroon with a fixed-price multiplier analysis," Policy Research Working Paper Series 3219, The World Bank.

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