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Balanced-Budget Rules and Aggregate Instability: The Role of Endogenous Capital Utilization
- Source :
- Journal of Money, Credit and Banking. 50:1669-1709
- Publication Year :
- 2018
- Publisher :
- Wiley, 2018.
-
Abstract
- Schmitt-Grohe and Uribe (1997) demonstrate that a balanced-budget fiscal policy can induce aggregate instability unrelated to economic fundamentals. The empirical relevance of this result has been challenged by subsequent studies. In this paper we show, both analytically and numerically, that such extrinsic instability is an empirically robust plausibility associated with a balanced-budget rule once endogenous capital utilization is taken into consideration. This suggests that the design or operation of a balanced-budget fiscal policy must recognize that it may constitute a practical source of self-fulfilling prophecies and belief-driven fluctuations.
- Subjects :
- Economics and Econometrics
Balanced budget
05 social sciences
Aggregate (data warehouse)
Monetary economics
Instability
Indeterminacy (literature)
Fiscal policy
Microeconomics
Accounting
0502 economics and business
Economics
Relevance (law)
Capital utilization
050207 economics
Finance
050205 econometrics
Subjects
Details
- ISSN :
- 00222879
- Volume :
- 50
- Database :
- OpenAIRE
- Journal :
- Journal of Money, Credit and Banking
- Accession number :
- edsair.doi...........85637165eca3ca41e2dbfc1b2c8a0730