The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The paper offers a non-probabilistic framework for representation of uncertainty in the
context of a simple linear-quadratic model of fiscal adjustment. Instead of treating model
disturbances as random variables with known probability distributions, it is only assumed
that they belong to some pre-specified compact set. Such an approach is appropriate when
the decision maker does not have enough information to form probabilistic beliefs or when
considerations for robustness are important. Solution of the model in the minimax sense
when disturbance sets are ellipsoids is obtained and the application of the method is
illustrated using the example of Portugal.