Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model

David Kendrick and George Shoukry ()
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George Shoukry: Department of Economics, The University of Texas at Austin

No 130208, Department of Economics Working Papers from The University of Texas at Austin, Department of Economics

Abstract: In an earlier paper, i.e. Kendrick and Amman (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 thru 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 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.

Keywords: fiscal policy; stochastic control; economic stochastic control models; feedback rules; macroeconomics; stabilization policy. (search for similar items in EconPapers)
JEL-codes: C63 E62 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-02
New Economics Papers: this item is included in nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Quarterly Fiscal Policy Experiments with a Multiplier-Accelerator Model (2014)
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