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Title:Toward a Taylor rule for fiscal policy PDF Logo
Authors:Kliem, Martin
Kriwoluzky, Alexander
Issue Date:2010
Series/Report no.:Discussion Paper Series 1: Economic Studies 2010,26
Abstract:This paper presents a procedure to determine policy feedback rules in dynamic stochastic general equilibrium (DSGE) models. We illustrate our approach with fiscal feedback rules for tax instruments in a standard medium-scale DSGE model. First, we approximate the optimal dynamic behavior of the economy using simple linear feedback rules. Then we calculate the elasticities of the model variables' moments with respect to the feedback coefficients. The feedback coefficients associated with the highest elasticities form the policy feedback rules to be estimated. Our results stress the importance of carefully modeled fiscal tax policy in two dimensions: (i) with respect to the dynamic responses of fiscal policy to exogenous shocks and (ii) with respect to the historical shock decomposition of fiscal policy.
Subjects:Fiscal policy
Bayesian model estimation
Identification
JEL:E62
H30
C51
ISBN:978-3-86558-671-1
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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