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Macroeconomic gains from structural fiscal policy adjustments: the case of Colombia

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  • Vargas, Hernando
  • González, Andrés
  • Lozano, Ignacio
Abstract
Policymakers worldwide are drawing key lessons from recent debates on the role of fiscal policy in the recovery of advanced economies. Interestingly, in the late 1990s, facing the collapse of their economies, many emerging market economies addressed some of the focal issues currently discussed, such as the timing of fiscal adjustments, the need of fiscal impulses and their scope, the effectiveness of fiscal instruments along the cycle and the thresholds above which public-debt would hamper economic growth. In this paper, we present some evidence from Colombia suggesting that fiscal consolidation may have important effects on the behavior of the macroeconomy. Using structural nonlinear impulse response functions, we find that a fiscal policy that reduces the structural fiscal deficit, decreases the Government currency mismatch and deepens the local fixed-rate public bond market results in stronger reactions of output to Government expenditure shocks and in greater responses of market interest rates to monetary policy shocks
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  • Vargas, Hernando & González, Andrés & Lozano, Ignacio, 2015. "Macroeconomic gains from structural fiscal policy adjustments: the case of Colombia," LSE Research Online Documents on Economics 123398, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123398
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    Cited by:

    1. Restrepo-Ángel, Sergio & Rincón-Castro, Hernán & Ospina-Tejeiro, Juan J., 2022. "Multipliers of taxes and public spending in Colombia: SVAR and local projections approaches," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(3).
    2. Vo Phuong Mai Le & Ruthira Naraidoo, 2019. "Monetary policy in a Model with Commodity and Financial Markets," Working Papers 201928, University of Pretoria, Department of Economics.
    3. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez & Jesus Bejarano & Andres Gonzalez & Clark Granger-Castaño & Franz Hamann & Yurany Hernández-Turca & Juan Manuel Julio-Román & Martha López & Juan C. , 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 90, pages 1-60, April.
    4. Jean-Pierre Allegret & Antonio Lemus, 2019. "Nonlinear effects of the Chilean fiscal policy," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(3), pages 132-153, December.
    5. Sergio Restrepo-Ángel & Hernán Rincón-Castro & Juan J. Ospina-Tejeiro, 2020. "Multiplicadores de los impuestos y del gasto público en Colombia: aproximaciones SVAR y proyecciones locales," Borradores de Economia 1114, Banco de la Republica de Colombia.

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    More about this item

    JEL classification:

    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
    • N46 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Latin America; Caribbean
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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