Achieving a Soft Landing: The Role of Fiscal Policy

March 1, 2008

Preview Citation

Format: Chicago

Daniel Leigh. Achieving a Soft Landing: The Role of Fiscal Policy, (USA: International Monetary Fund, 2008) accessed December 21, 2024

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.

Subject: Fiscal policy, Fiscal stance, Inflation, Return on investment, Revenue administration

Keywords: Inflation-output volatility tradeoff, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/069
Stock No:

WPIEA2008069
ISBN:

9781451869316
ISSN:

1018-5941

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