We look at fiscal policy by means of a parameter often used by the International Monetary Fund (IMF) called the fiscal impulse. The fiscal impulse measures the change in fiscal stance, which, in turn, is a measure of the fiscal balance adjusted for business cycles, and shows whether fiscal policy is expansionary (positive fiscal stance) or contractionary (negative fiscal stance). So, the fiscal impulse indicates the change in government’s fiscal stance: a positive impulse means a more expansionary fiscal stance vis-à-vis the previous fiscal, and vice-versa. Reading the fiscal impulse along with the output gap is a commentary on the conduct of the fiscal policy pursued. A negative fiscal impulse implies a contractionary fiscal policy, which when co-existing with a negative output gap implies pro-cyclical fiscal conduct.

Source: Mint May 07, 2021 05:26 UTC