The Crisis Simulator for Bolivia (KISr-p): An Empirically Grounded Modeling Framework

Ricardo Alonzo Fern\'andez Salguero

Papers from arXiv.org

Abstract: This document presents a detailed technical report of the ``Crisis Simulator for Bolivia (KISr-p),'' a quarterly stochastic model designed to evaluate the impact of various macroeconomic policy strategies in an environment of high uncertainty and structural constraints. Unlike standard general equilibrium frameworks, this simulator is grounded in the consolidated empirical findings of a vast collection of meta-analyses, adopting the theoretical architecture of a Keynesian Intertemporal Synthesis (KIS) with a Constant Elasticity of Substitution (KIS-CES) production function. The calibration of each model block -- real, fiscal, monetary, external, labor, and distributional -- is described in detail, with parameters justified by quantitative evidence on the hierarchy of fiscal multipliers (Gechert and Rannenberg, 2018), the complementarity of production factors (Gechert et al., 2022), monopsony power in the labor market (Sokolova and S{\o}rensen, 2021), and the dynamics of exchange rate and interest-rate pass-through. The model integrates these empirical regularities to generate non-linear dynamics such as state-dependent multipliers, asymmetric responses to shocks, and business-cycle phase interactions. Simulation results highlight the trade-offs between fiscal adjustment, external financing, debt restructuring, and structural reforms -- such as aggressive spending reallocation and targeted public investment. Scenarios show that pragmatic policy approaches that prioritize the \textit{composition} of spending over its aggregate level and that recognize institutional frictions yield superior macroeconomic and welfare outcomes compared to doctrinaire, one-size-fits-all prescriptions.

Date: 2025-10
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