Optimal Fiscal Adjustment under Uncertainty


Rossen Rozenov

Publication Date:

March 17, 2016

Electronic Access:

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The paper offers a non-probabilistic framework for representation of uncertainty in the context of a simple linear-quadratic model of fiscal adjustment. Instead of treating model disturbances as random variables with known probability distributions, it is only assumed that they belong to some pre-specified compact set. Such an approach is appropriate when the decision maker does not have enough information to form probabilistic beliefs or when considerations for robustness are important. Solution of the model in the minimax sense when disturbance sets are ellipsoids is obtained and the application of the method is illustrated using the example of Portugal.


Working Paper No. 2016/069



Publication Date:

March 17, 2016



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