Deficit Targeting Strategies: Fiscal Consolidation And The Probability Distribution Of Deficits Under The Stability Pact

McAdam, Peter and Hughes Hallett, AJ (2003) Deficit Targeting Strategies: Fiscal Consolidation And The Probability Distribution Of Deficits Under The Stability Pact. Journal of Common Market Studies, 41 (3). pp. 421-444. ISSN 0021-9886 . (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1111/1468-5965.00429

Abstract

Using stochastic simulations, this article analyses the probability distribution of a country's deficit ratio under fixed exchange rates and a variety of monetary and fiscal policy rules. The purpose is to show how the probability of an 'excessive deficit', defined by Europe's Stability Pact as a deficit to GDP ratio above 3 per cent, varies with different deficit targets and policy rules. Using a macro model, we find that when subject to historically consistent shocks, these fiscal ratios typically have a wide distribution, with fat tails and significantly longer tails on the upper side. That means fiscal targets may have to be country-specific and conservative, and that fiscal policy has to be forward-looking to keep the probability of excessive deficits below acceptable limits

Item Type: Article
Subjects: H Social Sciences
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: G.F. Green
Date Deposited: 07 Sep 2008 16:37
Last Modified: 14 Jan 2010 14:35
Resource URI: http://kar.kent.ac.uk/id/eprint/9448 (The current URI for this page, for reference purposes)
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