Chile’s Structural Fiscal Surplus Rule: A Model-Based Evaluation
IMF Working Papers, April 1, 2009
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Bibliographic details
- Authors: Michael Kumhof, Douglas Laxton
- Published: April 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872354.001
Methodology
- Uses a version of the IMF's Global Integrated Monetary and Fiscal Model (GIMF) that includes a copper sector.
- Focuses on copper price shocks originating in foreign copper demand.
- Evaluates Chile's structural balance fiscal rule under alternative policymaker preferences and fiscal targets.
Key findings
- Chile's current fiscal rule performs well if the policymaker puts a small weight on output volatility (relative to inflation volatility) in his/her objective function.
- A more aggressive countercyclical fiscal rule can attain lower output volatility, but:
- It leads to somewhat higher inflation volatility.
- It causes much higher volatility of fiscal variables.
- Given Chile's current stock of government assets, adoption of a 0.5% surplus target starting in 2008 is desirable from a business cycle perspective.
- The earlier 1% target would have required significant further asset accumulation that could only have been accomplished at the expense of greater volatility in fiscal instruments and therefore in GDP.
Policy implications and trade-offs
- Weighting in the policymaker’s objective function matters: prioritizing lower output volatility (relative to inflation) favors more countercyclical fiscal policy but increases volatility elsewhere.
- Fiscal targets should consider the existing stock of government assets; tighter surplus targets (e.g., 1%) imply larger asset accumulation and higher volatility in fiscal instruments and GDP compared with a 0.5% target.
Publication and metadata
- Authors: Michael Kumhof, Douglas Laxton
- Date: April 1, 2009
- Series: Working Paper No. 2009/088
- Pages: 54
- Issue: 088
- DOI: https://doi.org/10.5089/9781451872354.001
- ISBN: 9781451872354
- ISSN: 1018-5941
Michael Kumhof, and Douglas Laxton. "Chile’s Structural Fiscal Surplus Rule: A Model-Based Evaluation", IMF Working Papers 2009, 088 (2009), accessed 9/2/2026, https://doi.org/10.5089/9781451872354.001.