Description: How Small Should an Economy's Fiscal Deficit Be? A Monetary Programming Approach

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How Small Should an Economy's Fiscal Deficit Be? A Monetary Programming Approach

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 inte...

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Bibliographic Details
Main Author:	Beckerman, Paul
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCRUED INTEREST ASSETS BANK LENDING BANK LOANS BASE YEAR BONDS CENTRAL BANK COMMERCIAL BANKS DEBT DEMAND FOR MONEY DEVELOPING ECONOMIES DOMESTIC PRICE DOMESTIC PRICE LEVEL ECONOMIC PERFORMANCE ECONOMISTS ELASTICITIES ELASTICITY ELASTICITY OF DEMAND EXCHANGE RATE EXCHANGE VALUE EXTERNAL BORROWING EXTERNAL DEBT EXTERNAL FINANCING FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL SYSTEM FISCAL ADJUSTMENT FISCAL DEFICIT FISCAL POLICY FORECASTS FOREIGN CURRENCY FOREIGN EXCHANGE GOVERNMENT DEBT GROSS DOMESTIC PRODUCT GROWTH RATE GROWTH RATES IMPORTS INFLATION INFLATION RATE INTEREST RATE INTEREST RATES INTERNATIONAL MONETARY FUND INTERNATIONAL RESERVES LIQUIDITY MACROECONOMIC FRAMEWORK MACROECONOMIC OBJECTIVES MACROECONOMIC POLICY MONETARY AUTHORITY MONETARY EXPANSION MONEY DEMAND MONEY MULTIPLIER MONEY SUPPLY NET WORTH NOMINAL INTEREST RATE NOMINAL INTEREST RATES OUTPUT GROWTH POLICY ANALYSIS POLICY INSTRUMENTS POLICY RESEARCH POVERTY REDUCTION PUBLIC DEFICIT PUBLIC SECTOR REAL GDP REAL INTEREST REAL INTEREST RATE REAL INTEREST RATES REAL OUTPUT REAL TERMS RESERVE TAX REVENUE
Online Access:	http://documents.worldbank.org/curated/en/2000/03/437906/small-economys-fiscal-deficit-monetary-programming-approach http://hdl.handle.net/10986/18855

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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.