A tool for fiscal policy planning in a medium-term fiscal framework: The FMM-MTFF model |
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Institution: | 1. Faculty of Economics, Kanagawa University, 3-27-1, Rokkakubashi, Kanagawa-ku, Yokohama, Kanagawa, 221-8686, Japan;2. Institute of Social Science, The University of Tokyo, 7-3-1, Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan |
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Abstract: | This paper describes the FMM-MTFF model, a dynamic stochastic general equilibrium model developed to support the implementation of a Medium-Term Fiscal Framework (MTFF) in emerging market and developing economies. The model exhibits the following features. First, fiscal policy is defined in terms of multi-year fiscal plans, instead of restricting attention to univariate, single-period fiscal shocks. Second, the model temporarily deactivates the fiscal rule to avoid forcing fiscal policy to be mechanically countercyclical and sustainable. Third, the model is calibrated to match a three-sector, stylized version of a country’s input-output table, and finally, the model uses a chain-weighted procedure to measure GDP, a method consistent with what national account compilers do. The model is calibrated to Colombian and Peruvian data to illustrate the use of the model as a tool to quantify the scale of the fiscal challenges, to provide consistent medium-term macro fiscal projections and to assess the quantitative implications of past reforms and alternative fiscal policy plans on the economies, i.e., the typical questions of interest to an MTFF. |
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Keywords: | Commodity boom Developing countries Fiscal policy Fiscal policy plans Medium-term fiscal framework Natural resources E62 F41 H68 Q33 |
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