Cover IMF Working Papers
Fiscal Policy During Absorption Cycles
Author: Mr. Ferhan Salman and Miss Gabriela Dobrescu
Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 041
Language:
English
Publication Date:
01 Feb 2011
DOI:
https://doi.org/10.5089/9781455218004.001
ISBN:
9781455218004
ISSN:
1018-5941
Pages:
32
Keywords:
WP; fiscal policy; structural fiscal balance; domestic absorption; output gap; fiscal reaction function; reaction function; fiscal policy behavior; absorption gap; asset price cycle; fiscal policy reaction; fiscal policy stance; Fiscal stance; Macro-fiscal analysis; Current account; Global
Legal-disclaimer:
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.
Download PDF (280.1 KB) Download Epub
Domestic absorption cycles are relevant in assessment and design of fiscal policies. Our cross-country analysis covers 59 advanced and emerging countries for the 1990-2009 period. We show that ignoring domestic absorption cycles leads to biased fiscal stance indicators, for both advanced and emerging economies, by up to 1.5 percent of GDP. The estimates of fiscal policy reaction functions indicate that absorption booms are associated with pro-cyclical fiscal policy. We tackle the endogeneity problem in reactions functions through stripping the cyclical component of the fiscal aggregates. We also find that simple filtering methods in the computation of absorption gaps perform as better as indirect methods of estimating trade balance gaps and stripping of output gaps.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund