Fiscal rule and shock amplification: A stochastic endogenous growth model
Working Papers from HAL
This paper develops a discrete-time stochastic endogenous growth model to study the amplification role of fiscal rules. In our model, transitory shocks exert permanent effects on the level of variables in equilibrium (hysteresis), and can be strongly amplified by the public debt adjustment, leading to a procyclical amplification mechanism (the "public debt accelerator"). This procyclical stance depends on the speed of adjustment of the debt-to-GDP ratio under a fixed-fiscal rule. A cold turkey strategy removes the public debt shock, but at the risk of destabilizing other variables, while a gradualist strategy has a stabilization effect, with detrimental consequences in the long-run. Finally, we show that a flexible-fiscal rule helps smooth aggregate variables by limiting the cuts in productive public spending.
Keywords: Endogenous growth model; Hysteresis; Fiscal Rules (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-gro and nep-mac
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02153887v2
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02153887
Access Statistics for this paper
More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().