Estimating Fiscal Multipliers Under Alternative Exchange Rate Regimes: The Case of Bolivia

By Tannous Kass-Hanna, Julien Reynaud, Chris Walker

November 17, 2023

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Tannous Kass-Hanna, Julien Reynaud, and Chris Walker. Estimating Fiscal Multipliers Under Alternative Exchange Rate Regimes: The Case of Bolivia, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Empirical (employing the Blanchard-Perotti framework) and modeling (using a country-specific DSGE model) approaches are used to estimate fiscal multipliers by policy instrument for Bolivia, to evaluate possible adjustments in a fiscal consolidation strategy. Multipliers are also estimated using alternative assumptions about the accompanying exchange rate regime and capital mobility, highlighting the importance of the policy mix in determining the impact of fiscal adjustments. The study exploits the DSGE modeling structure to assess this interaction of fiscal and monetary policy in a lower middle-income country under different exchange rate regimes. It finds that expenditure multipliers fall into the range of 1/3 to 2/3, with public investment multipliers slightly higher than government consumption multipliers over longer horizons, and multipliers generally higher under a peg than inflation targeting. Tax multipliers are shown to be about half of expenditure multipliers.

Subject: Consumption, Current spending, Expenditure, Fiscal multipliers, Fiscal policy, National accounts, Public investment spending

Keywords: Bolivia, Capital mobility, Caribbean, Consumption, Current spending, DSGE model, DSGE modeling, Expenditure multiplier, Fiscal multiplier, Fiscal multipliers, IMF working paper 23/240, Public investment spending, Tax multiplier

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/240
Stock No:

WPIEA2023240
ISBN:

9798400260285
ISSN:

1018-5941

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