01877cas a2200241 a 4500 AALejournalIMF019476 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498325066 1018-5941 BD-DhAAL BD-DhAAL Fournier, Jean-Marc. A Buffer-Stock Model for the Government : Balancing Stability and Sustainability / Jean-Marc Fournier. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (40 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students A fiscal reaction function to debt and the cycle is built on a buffer-stock model for the government. This model inspired by the buffer-stock model of the consumer (Deaton 1991; Carroll 1997) includes a debt limit instead of the Intertemporal Budget Constraint (IBC). The IBC is weak (Bohn, 2007), a debt limit is more realistic as it reflects the risk of losing market access. This risk increases the welfare cost of fiscal stimulus at high debt. As a result, the higher the debt, the less governments should smooth the cycle. A larger reaction of interest rates to debt and higher hysteresis magnify this interaction between the debt level and the appropriate reaction to shocks. With very persistent shocks, the appropriate reaction to negative shocks in highly indebted countries can even be procyclical. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2019/159 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/159/001.2019.issue-159-en.xml IMF e-Library