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Achieving a Soft Landing: The Role of Fiscal Policy

Author/Editor: Leigh, Daniel
Authorized for Distribution: March 1, 2008
Electronic Access: Free Full Text (PDF file size is 580KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper utilizes an open-economy New Keynesian overlapping generations model to assess the extent to which fiscal policy, along side an inflation-forecast-based monetary policy, could enhance macroeconomic stability in Colombia. The model simulations indicate that, in addition to stabilizing output and inflation, a stronger response of the fiscal balance to excess tax revenue would reduce the burden on the central bank of adjusting interest rates, lessen the associated degree of exchange rate volatility, and contribute to a more stable external current account balance. The analysis also assesses how the success of fiscal policy in enhancing macroeconomic stability depends on the type of shock, the response of monetary policy, and the length of fiscal policy implementation lags.
 
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Series: Working Paper No. 08/69
Subject(s): Fiscal policy | Colombia | Monetary policy | Business cycles | Tax revenues
Author's keyword(s): Business cycle stabilization; Fiscal policy; Monetary policy
 
English  
    Published:   March 1, 2008        
            Format:   Paper
    Stock No:   WPIEA2008069   Pages:   23
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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