Fredrik N G Andersson
Docent
Macroeconomic equilibriums, crises, and fiscal policy
Författare
Summary, in Swedish
Fiscal policy plays an important role in alleviating the costs of the crisis. However, recent experiences suggest that the public finances often are unprepared for a crisis. Deficits and debt levels prior to the crisis are commonly too high, limiting the government’s ability to support the economy through the crisis and the recovery phase. In this paper, I argue that theoretical macroeconomic models’ underlying assumption of a stable long-run equilibrium may partially explain why governments fail to prepare the public finance for a future crisis. In the standard equilibrium models, crises are seen as one-off events caused by external factors, which creates a false impression of long-run economic stability. The models thus indirectly indicate that there is no need to prepare for a potential crisis. Using forecast data, I demonstrate how the equilibrium perspective dominates macroeconomic thinking and how it contributes to too-high debt ratios prior to a crisis. I end the paper by discussing how to design fiscal policy rules based on a crisis rather than an equilibrium perspective.
Avdelning/ar
- Nationalekonomiska institutionen
Publiceringsår
2022-03-28
Språk
Engelska
Sidor
664-688
Publikation/Tidskrift/Serie
Global Discourse
Volym
12
Issue
3-4
Länkar
Dokumenttyp
Artikel i tidskrift
Förlag
Bristol University Press
Ämne
- Economics
Nyckelord
- economic crisis
- fiscal policy
- economic models
- equilibrium models
- national debt
- sovereign debt crisis
- fiscal frameworks
Status
Published
ISBN/ISSN/Övrigt
- ISSN: 2043-7897