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Mr. Gerd Schwartz and Mr. Ke-young Chu
This paper discusses the role of government expenditure policies in the decline in aggregate output in European transition economies. It is argued that there is little evidence for the hypothesis that more expansionary expenditure policies would have helped to mitigate the output decline. While measurement problems allow for very preliminary conclusions, it appears that government expenditures were, generally, not a binding constraint for output. In those cases where it could be argued that government expenditures were a binding constraint, they were usually not the only one. Government expenditure levels still remain on the high side, at least when compared with European market-based economies, and there exists few reasons for pursuing expansionary expenditure policies to lift European transition economies out of the “transitional recession.” While raising expenditure levels per se is an unappealing policy choice, a further reordering of expenditure priorities is desirable. In particular, increases in the share of government expenditures on capital--human and physical--are needed to improve long-run output potential.
Mr. Ke-young Chu and Mr. Gerd Schwartz

This paper discusses the role of expenditure policies in the decline in aggregate output in European transition economies. It considers three main questions. First, it asks whether actual changes in the level and composition of government expenditures in European transition economies were largely the result of policies or of transition-induced exogenous factors. Second, the paper asks whether government expenditure policies contributed significantly to the measured output decline, and if so, whether this was attributable to specific expenditure components

International Monetary Fund
Observers have often characterized asset markets as being subject to periods of tranquility and periods of turbulence. Until recently, however, researchers were unable to produce closed-form asset pricing formulas in a model environment of time-varying risk. Some work by Abel provided us with the insights needed to produce such formulas. This paper gives a exposition of how to develop the formulas in an environment where the formulas may by obtained using a simple extension of standard tools. While the paper is intended mainly as an exposition of new work, it also contains a report on the asset market effect of fiscal reform. It is found that entering a period of weak coordination between government spending and taxing (tax rate) policy is good for stock prices.