A macroeconomic structural model for the Portuguese economy

Ricardo Félix ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents a macroeconomic model with some microfoundations for a small open economy. The main purpose is the simulation of external environment and fiscal policy shocks. The model includes sufficiently disaggregated public sector and household disposable income accounts and it considers a fiscal policy rule that ensures the fulfilment of some budgetary requirements. Thus, the impact in main macroeconomic aggregates of alternative external environment shocks can be evaluated under the assumption that the government automatically adjusts the income tax rate to fulfill these requirements. Furthermore, it is well known that the impact of fiscal policy shocks depends crucially on the economic agents’ ability to adjust their behaviour to fiscal policy changes, according to their assessment on future economic developments. Since, this model considers economic agents that form model-consistent expectations, then fiscal policy simulations can be performed properly. In this study, the model is calibrated for the Portuguese economy and the fiscal rule budgetary requirements (a target fiscal balance of 3% of GDP and a debt-to-GDP ratio target of 60%) correspond to the Stability and Growth Pact excessive deficit thresholds. The simulations presented here can contribute to the current discussion of budgetary consolidation measures in Portugal.

Keywords: structural models; rational expectations; fiscal policy; fiscal rule; Portugal (search for similar items in EconPapers)
JEL-codes: C51 E27 E62 (search for similar items in EconPapers)
Date: 2005-10-18, Revised 2005-11-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: A macroeconomic structural model for the Portuguese economy (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10465

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