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New Directions in Monetary and Fiscal Policy Analysis at the Macroeconomic Level

Grant reference: RES-062-23-1436

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Uncertain fiscal consolidations
In a non-linear New Keynesian economy, we explore the macro-economic consequences of undertaking state-dependent fiscal consolidations of uncertain timing and composition. Following the empirical evidence in Alesina and Ardagna (2010), we place particular emphasis on whether or not the fiscal consolidation is driven by tax rises or expenditure cuts. We find that the composition of the fiscal consolidation, its duration, the monetary policy stance, the level of government debt, the degree of price stickiness, and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary and/or successful.
English

Primary contributor

Author Huixin Bi

Additional contributors

Co-author Eric Leeper
Co-author Campbell Leith

Additional details

02 June 2011

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