How small should an economy's fiscal deficit be? - a monetary programming approach

Paul E. Beckerman

No 2308, Policy Research Working Paper Series from The World Bank

Abstract: The author describes a spread-sheet planning model to help determine the government deficit consistent with a policymaker's"vector"of principal macroeconomic objectives (including real GDP growth, inflation, exchange rate, and international reserve accumulation). The model focuses on the monetary accounts, applying balance-of-payments forecasts formulated separately, but based on the same macroeconomic objectives. The model is a consistency exercise, intended as part of a broader consistency exercise for a given macro-economy. It offers one more perspective on the question of how large a government deficit should be - a perspective that can be used in conjunction with others. For each forecast period, the model determines consistent period-end and period-average stocks for the economy's outstanding central bank assets, and liabilities and, government obligations. I applies forecasting assumptions about interest rates to forecast central bank profit-and-loss flows, and takes account of these in determining the overall flow of resources that would be available to finance the government deficit. An annex describes a (purely illustrative) simulation carried out during 1999 for Ecuador.

Keywords: Macroeconomic Management; Payment Systems&Infrastructure; Environmental Economics&Policies; Economic Stabilization; Economic Theory&Research; International Terrorism&Counterterrorism; Banks&Banking Reform (search for similar items in EconPapers)
Date: 2000-03-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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