NBER Working Papers and Publications
|October 1988||Inflation, External Debt and Financial Sector Reform: A Quantitative Approach To Consistent Fiscal Policy With An Application to Turkey|
with Sweder van Wijnbergen: w2731
This paper presents and applies an integrated framework to assess the consistency between fiscal deficits and other macroeconomic targets, such as output growth and the rate of inflation. The model centers around the government budget constraint and can be used to either derive the financeable deficit given inflation targets, or to derive an equilibrium inflation rate for which no fiscal adjustment would be necessary. The financeable deficit is defined as the deficit that does not require more financing than is compatible with sustainable external and internal borrowing, and existing targets for inflation and output growth. The model can assess the impact on the relation between fiscal adjustment and sustainable inflation rates of financial sector reforms affecting base money demand, of ch...