Non-Keynesian Effects of Fiscal Consolidation [E-Book]: An Analysis with an Estimated DSGE Model for the Hungarian Economy / Szilárd Benk and Zoltán Jakab
Benk, Szilárd.
Jakab, Zoltán.
Paris : OECD Publishing, 2012
51 p. ; 21 x 29.7cm.
OECD Economics Department Working Papers ; 945
Full Text
Using an estimated DSGE model for Hungary, the paper identifies the possible non-Keynesian channels through which a fiscal consolidation may manifest as expansionary. Simulations show that fiscal consolidation policies are typically contractionary. Nevertheless, taking into account some specific features of the Hungarian economy, there is a possibility that expansionary effects arise. These effects may take the form of a drop in interest rate risk premium or favourable balance sheet effects through the appreciation of the currency. However, the credibility of fiscal consolidation is key in achieving positive output effects. A non-credible consolidation is unlikely to expand output, regardless of the assumptions regarding the specific features of the economy, and regardless of the composition of a consolidation package.