The Golden Rule and the Economic Cycles
IMF Working Papers, August 1, 2007
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- The Golden Rule and the Economic Cycles
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Bibliographic details
- Authors: Keiko Honjo
- Published: August 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867633.001
Summary and main findings
- The present formulation of the golden rule in the United Kingdom allows fiscal performance to be tested explicitly on an ex-post basis.
- The formulation requires precise dating of the economic cycle, which can lead to significant controversy.
- The need to aim for current balance or better "over the cycle" may force fiscal policy to be procyclical toward the end of cycles.
- Using dynamic stochastic simulations, the paper suggests that making the formulation of the golden rule forward-looking and independent of the dating of the economic cycle would:
- reduce the risk of procyclicality; and
- enhance macroeconomic stability.
Methodology
- Analytical approach: dynamic stochastic simulations.
Policy implications and recommendations
- Reform the golden rule formulation to be forward-looking rather than strictly ex-post.
- Make the formulation independent of precise dating of economic cycles to:
- lower the likelihood that fiscal policy becomes procyclical at cycle-ends; and
- support greater macroeconomic stability.
Key statistics and publication metadata
- Author: Keiko Honjo
- Date: August 1, 2007
- Pages: 23
- Volume: 2007
- Issue: 199
- Series: Working Paper No. 2007/199
- DOI: https://doi.org/10.5089/9781451867633.001
- Stock No: WPIEA2007199
- ISBN: 9781451867633
- ISSN: 1018-5941
The Golden Rule and the Economic Cycles, IMF Working Paper No. 2007/199.
Content in this bundle
- The Golden Rule and the Economic Cycles; Keiko Honjo; IMF Working Paper 07/199; August 1, 2007.