Impact of Fiscal Stability Law

Authors: Ragchaasuren Galindev

Source: Economic research institute

Keywords: Mongolian fiscal stability law, CGE modelling

Date: 2014-04-01

This paper develops a dynamic, small open economy Computable General Equilibrium model with static expectations and a representative household for the Mongolian economy and examines the impact of the Fiscal Stability Law (FSL) which tries to stabilise government expenditure in an environment where the prices of mineral products (coal and copper) are highly volatile. It has two main parts – historical and forecast simulations. In the former, we follow a validation procedure to estimate the parameters of the model while in the latter we examine the effect of the FSL on the economy by generating artificial series for coal and copper prices until 2020. We find that the FSL reduces the volatility of most of the variables.

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