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How small should an economy's fiscal deficit be? - a monetary programming approach, Volume 1
 
Author:Beckerman, Paul; Date Stored:2001/04/25
Document Date:2000/03/31Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Payment Systems & Infrastructure; Economic Stabilization; Macroeconomic Management; Banks & Banking ReformLanguage:English
Major Sector:(Historic)Economic PolicyReport Number:WPS2308
Sub Sectors:Macro/Non-TradeCollection Title:Policy, Reasearch working paper ; no. WPS 2308
Volume No:1  

Summary: The author describes a spread-sheet planning model to help determine the government deficit consistent with a policymaker's "vector" of principal macroeconomic objectives (including real GDP growth, inflation, exchange rate, and international reserve accumulation). The model focuses on the monetary accounts, applying balance-of-payments forecasts formulated separately, but based on the same macroeconomic objectives. The model is a consistency exercise, intended as part of a broader consistency exercise for a given macro-economy. It offers one more perspective on the question of how large a government deficit should be - a perspective that can be used in conjunction with others. For each forecast period, the model determines consistent period-end and period-average stocks for the economy's outstanding central bank assets, and liabilities and, government obligations. I applies forecasting assumptions about interest rates to forecast central bank profit-and-loss flows, and takes account of these in determining the overall flow of resources that would be available to finance the government deficit. An annex describes a (purely illustrative) simulation carried out during 1999 for Ecuador.

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