Macroeconomic effects of fiscal rules for a commodity-exporting economy: avoiding procyclical bias in Kazakhstan

Zhandos Ybrayev, Olzhas Kubenbayev and Akylzhan Baimagambetov

Macroeconomics and Finance in Emerging Market Economies, 2024, vol. 17, issue 2, 271-294

Abstract: This paper investigates the macroeconomic consequences of an alternative fiscal rule in the context of commodity price shocks for a commodity-exporting country. We build a DSGE model to explain the business cycle in an oil-exporting economy, estimated using macroeconomic data from Kazakhstan. Our results demonstrate that when fiscal policy is procyclical in response to a transitory negative oil price shock, and if a majority of households are non-Ricardian, then a one standard deviation drop in oil prices causes an output decline of about 0.19%. In contrast, if the fiscal policy is countercyclical and conducted according to the structural balance fiscal rule, output increases by about 0.13% in response to the same shock. We also report that countercyclical fiscal policy is robustly effective when the monetary policy is characterized by its active inflation stabilization framework.

Date: 2024
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DOI: 10.1080/17520843.2022.2043602

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