Estimating Fiscal Multipliers Under Alternative Exchange Rate Regimes: The Case of Bolivia

Estimating Fiscal Multipliers Under Alternative Exchange Rate Regimes: The Case of Bolivia
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Volume/Issue: Volume 2023 Issue 240
Publication date: November 2023
ISBN: 9798400260285
$20.00
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Topics covered in this book

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Economics- Macroeconomics , Public Finance , Economics / General , fiscal multiplier , capital mobility , Bolivia , DSGE model , expenditure multiplier , DSGE modeling , IMF working paper 23/240 , tax multiplier , Fiscal multipliers , Public investment spending , Consumption , Current spending , Caribbean

Summary

Empirical (employing the Blanchard-Perotti framework) and modeling (using a country-specific DSGE model) approaches are used to estimate fiscal multipliers by policy instrument for Bolivia, to evaluate possible adjustments in a fiscal consolidation strategy. Multipliers are also estimated using alternative assumptions about the accompanying exchange rate regime and capital mobility, highlighting the importance of the policy mix in determining the impact of fiscal adjustments. The study exploits the DSGE modeling structure to assess this interaction of fiscal and monetary policy in a lower middle-income country under different exchange rate regimes. It finds that expenditure multipliers fall into the range of 1/3 to 2/3, with public investment multipliers slightly higher than government consumption multipliers over longer horizons, and multipliers generally higher under a peg than inflation targeting. Tax multipliers are shown to be about half of expenditure multipliers.