Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/kap/compec/v44y2014i3p269-293.html
   My bibliography  Save this article

Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model

Author

Listed:
  • David Kendrick
  • George Shoukry
Abstract
In an earlier paper, i.e. Kendrick and Amman (A Taylor Rule for fiscal policy?, 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 2007–2010 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 over the counterfactual periods 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. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • David Kendrick & George Shoukry, 2014. "Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 269-293, October.
    • Handle: RePEc:kap:compec:v:44:y:2014:i:3:p:269-293
    DOI: 10.1007/s10614-013-9389-4
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10614-013-9389-4
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10614-013-9389-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14, National Bureau of Economic Research, Inc.
    2. Deissenberg, Christophe, 1980. "Optimal Control of Linear Econometric Models with Intermittent Controls," Economic Change and Restructuring, Springer, vol. 16(1), pages 49-56.
    3. Kenneth Garbade, 1975. "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.
    4. 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.
    5. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
    6. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
    7. Amman, Hans & Kendrick, David, 1999. "Linear-Quadratic Optimization For Models With Rational Expectations," Macroeconomic Dynamics, Cambridge University Press, vol. 3(4), pages 534-543, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hudgins, David & Crowley, Patrick M., 2017. "Modelling a small open economy using a wavelet-based control model," Research Discussion Papers 32/2017, Bank of Finland.
    2. repec:zbw:bofrdp:2017_032 is not listed on IDEAS
    3. repec:zbw:bofrdp:2019_011 is not listed on IDEAS
    4. Ilias Kostarakos & Stelios Kotsios, 2018. "Fiscal Policy Design in Greece in the Aftermath of the Crisis: An Algorithmic Approach," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 893-911, April.
    5. Patrick M. Crowley & David Hudgins, 2022. "Monetary policy objectives and economic outcomes: What can we learn from a wavelet‐based optimal control approach?," Manchester School, University of Manchester, vol. 90(2), pages 144-170, March.
    6. repec:zbw:bofrdp:2016_021 is not listed on IDEAS
    7. David Hudgins & Patrick M. Crowley, 2023. "Resilient Control for Macroeconomic Models," Computational Economics, Springer;Society for Computational Economics, vol. 61(4), pages 1403-1431, April.
    8. Crowley, Patrick M. & Hudgins, David, 2015. "Euro area monetary and fiscal policy tracking design in the time-frequency domain," Research Discussion Papers 12/2015, Bank of Finland.
    9. Crowley, Patrick M. & Hudgins, David, 2016. "Analysis of the balance between U.S. monetary and fiscal policy using simulated wavelet-based optimal tracking control," Bank of Finland Research Discussion Papers 21/2016, Bank of Finland.
    10. Patrick M. Crowley & David Hudgins, 2018. "What is the right balance between US monetary and fiscal policy? Explorations using simulated wavelet-based optimal tracking control," Empirical Economics, Springer, vol. 55(4), pages 1537-1568, December.
    11. Crowley, Patrick M. & Hudgins, David, 2016. "Analysis of the balance between U.S. monetary and fiscal policy using simulated wavelet-based optimal tracking control," Research Discussion Papers 21/2016, Bank of Finland.
    12. Crowley, Patrick M. & Hudgins, David, 2015. "Euro area monetary and fiscal policy tracking design in the time-frequency domain," Bank of Finland Research Discussion Papers 12/2015, Bank of Finland.
    13. Crowley, Patrick M. & Hudgins, David, 2015. "Fiscal policy tracking design in the time–frequency domain using wavelet analysis," Economic Modelling, Elsevier, vol. 51(C), pages 502-514.
    14. Hudgins, David & Crowley, Patrick M., 2017. "Modelling a small open economy using a wavelet-based control model," Bank of Finland Research Discussion Papers 32/2017, Bank of Finland.
    15. repec:zbw:bofrdp:2015_012 is not listed on IDEAS
    16. Crowley, Patrick M. & Hudgins, David, 2019. "U.S. Macroeconomic Policy Evaluation in an Open Economy Context using Wavelet Decomposed Optimal Control Methods," Research Discussion Papers 11/2019, Bank of Finland.
    17. repec:zbw:bofrdp:urn:nbn:fi:bof-201508131350 is not listed on IDEAS
    18. Crowley, Patrick M. & Hudgins, David, 2017. "Wavelet-based monetary and fiscal policy in the Euro area," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 206-231.
    19. David Hudgins & Patrick M. Crowley, 2019. "Stress-Testing U.S. Macroeconomic Policy: A Computational Approach Using Stochastic and Robust Designs in a Wavelet-Based Optimal Control Framework," Computational Economics, Springer;Society for Computational Economics, vol. 53(4), pages 1509-1546, April.
    20. Crowley, Patrick M. & Hudgins, David, 2019. "U.S. Macroeconomic Policy Evaluation in an Open Economy Context using Wavelet Decomposed Optimal Control Methods," Bank of Finland Research Discussion Papers 11/2019, Bank of Finland.
    21. repec:bof:bofrdp:urn:nbn:fi:bof-201508131350 is not listed on IDEAS
    22. Ilias Kostarakos & Stelios Kotsios, 2017. "Feedback policy rules for government spending: an algorithmic approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 6(1), pages 1-10, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dennis, Richard, 2007. "Optimal Policy In Rational Expectations Models: New Solution Algorithms," Macroeconomic Dynamics, Cambridge University Press, vol. 11(1), pages 31-55, February.
    2. Kendrick, David A., 2005. "Stochastic control for economic models: past, present and the paths ahead," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 3-30, January.
    3. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    4. Frederick H. Wallace & Gary L. Shelley & Luis F. Cabrera Castellanos, 2004. "Pruebas de la neutralidad monetaria a largo plazo: el caso de Nicaragua," Monetaria, CEMLA, vol. 0(4), pages 407-418, octubre-d.
    5. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2059-2094, September.
    6. repec:zbw:bofrdp:2007_032 is not listed on IDEAS
    7. Coenen, Gunter & Wieland, Volker, 2003. "The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1071-1101, July.
    8. Wollmershauser, Timo, 2006. "Should central banks react to exchange rate movements? An analysis of the robustness of simple policy rules under exchange rate uncertainty," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 493-519, September.
    9. Kim, Jinill & Ruge-Murcia, Francisco J., 2009. "How much inflation is necessary to grease the wheels?," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 365-377, April.
    10. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    11. Pär Österholm, 2005. "The Taylor Rule: A Spurious Regression?," Bulletin of Economic Research, Wiley Blackwell, vol. 57(3), pages 217-247, July.
    12. Raffinot, Thomas, 2017. "Interest-Rates-Free Monetary Policy Rule," Working Papers 06898, George Mason University, Mercatus Center.
    13. Brent Bundick, 2015. "Estimating the Monetary Policy Rule Perceived by Forecasters," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 33-49.
    14. Galí, Jordi, 2010. "Monetary Policy and Unemployment," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 10, pages 487-546, Elsevier.
    15. Patrick Minford & Naveen Srinivasan, 2015. "Can the Learnability Criterion Ensure Determinacy in New Keynesian Models?," South Asian Journal of Macroeconomics and Public Finance, , vol. 4(1), pages 43-61, June.
    16. Andrew J. Filardo, 2000. "Monetary policy and asset prices," Economic Review, Federal Reserve Bank of Kansas City, vol. 85(Q III), pages 11-37.
    17. Levine, Paul & Pearlman, Joseph, 2011. "Computation of LQ Approximations to Optimal Policy Problems in Different Information Settings under Zero Lower Bound Constraints," Dynare Working Papers 10, CEPREMAP.
    18. Akosah, Nana & Alagidede, Imhotep & Schaling, Eric, 2019. "Unfolding the monetary policy rule in Ghana: quantile-based evidence within time-frequency framework," MPRA Paper 103260, University Library of Munich, Germany, revised 01 Oct 2020.
    19. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    20. Trehan, Bharat & Wu, Tao, 2007. "Time-varying equilibrium real rates and monetary policy analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1584-1609, May.
    21. Yu Hsing, 2017. "Is Real Depreciation And More Government Spending Expansionary? The Case Of Montenegro," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 20, pages 103-113, December.

    More about this item

    Keywords

    Fiscal policy; Stochastic control; Economic stochastic control models; Feedback rules; Macroeconomics; Stabilization policy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:44:y:2014:i:3:p:269-293. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.