Automatic stabilizers, fiscal rules and macroeconomic stability

Abstract

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A rational expectations model for simulation and policy evaluation of the Spanish economy

“…Hump-shaped consumption dynamics is explained by the presence of RoT households, which display relatively more volatile and less persistent consumption compared with Ricardians. It is worth mentioning that our impulse-response functions closely resemble those presented in Andrés et al (2008) who, extending the research of Andrés and Doménech (2006), also find small effects in the very short run following a technology shock in the context of a model with price rigidities and RoT consumers.…”

To react or not? Technology shocks, fiscal policy and welfare in the EU-3

“…Also following e.g. Guo and Lansing (1998), Aloi et al (2003), Andrés and Doménech (2006), Schmitt-Grohé and Uribe (2007) and Andrés et al (2008), the policy instrument rates (g cfeedback rules. These rules consist of an exogenous, or non-state contingent, part and an endogenous, or state-contingent, part.…”

“…These policies 1 We will use the terms active, feedback, state-contingent and state-dependent interchangeably. 2 Also note that policymakers may even follow procyclical policy which further undermines the role of automatic stabilizers. Procyclical policies are typically associated with political distortions.…”

“…At the same time, due to the conditions of the Maastricht Treaty (MT) and the Stability and Growth Pact (SGP), there have also been recommendations in Europe to correct public …nance imbalances by adding, for instance, the public debt-to-GDP ratio, or the budget de…cit-to-GDP ratio, to the set of fundamentals that …scal authorities should respond to. 2 This renewed interest in countercyclical …scal stabilization policy begs a number of important questions regarding which, if any, of the potential …scal instruments available to policymakers will be able to deliver the desired degree of macroeconomic stability. More importantly, will active relative to passive policy be welfare improving?…”

“…Andrés et al (2008), Andrés and Doménech (2006), the papers in the CESifo Economic Studies (2005) volume and the theoretical papers on feedback …scal policy, e.g. Aloi et al (2003), Guo and Lansing (1998) and Leeper (1991)).…”