Cover IMF Working Papers
Achieving a Soft Landing: The Role of Fiscal Policy
Author: Mr. Daniel Leigh
Series:
IMF Working Papers
Volume/Issue:
Volume 2008: Issue 069
Language:
English
Publication Date:
01 Mar 2008
DOI:
https://doi.org/10.5089/9781451869316.001
ISBN:
9781451869316
ISSN:
1018-5941
Pages:
23
Keywords:
WP; inflation-output volatility tradeoff
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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.
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This paper utilizes an open-economy New Keynesian overlapping generations model to assess the extent to which fiscal policy, along side an inflation-forecast-based monetary policy, could enhance macroeconomic stability in Colombia. The model simulations indicate that, in addition to stabilizing output and inflation, a stronger response of the fiscal balance to excess tax revenue would reduce the burden on the central bank of adjusting interest rates, lessen the associated degree of exchange rate volatility, and contribute to a more stable external current account balance. The analysis also assesses how the success of fiscal policy in enhancing macroeconomic stability depends on the type of shock, the response of monetary policy, and the length of fiscal policy implementation lags.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund