The evaluation of the Peruvian fiscal rule from an aggregate economic perspective

Carlos Cortez Lopez

doi:10.4067/S0718-88702018000100003

Authors

Carlos Cortez Lopez Universidad Alberto Hurtado

DOI:

https://doi.org/10.4067/S0718-88702018000100003

Keywords:

Fiscal rule, small and open economy, fiscal pro-cyclicality

Abstract

The purpose of this paper is to evaluate the effects of structural balance fiscal rule on economic aggregates through a dynamic stochastic general equilibrium (DSGE) model, which characterizes an emerging small and open economy as the Peruvian. The results show how this fiscal rule reduces the volatility of different aggregates and the cyclicality of consumption, government spending, investment, imports, exports, net external debt of the economy and the production of non-tradable, except of the production of exportable goods. However, other shocks has a null or opposite effect, namely structural balance fiscal rule is a necessary condition, but not sufficient to smooth the transition of government spending and other economic aggregates to the steady state.

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