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Macroeconomics and DevelopmentRoberto Frenkel and the Economics of Latin America$
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Mario Damill, Martín Rapetti, and Guillermo Rozenwurcel

Print publication date: 2016

Print ISBN-13: 9780231175081

Published to Columbia Scholarship Online: September 2016

DOI: 10.7312/columbia/9780231175081.001.0001

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Uncertainty in Structural and Institutional Parameters and the Cost of Policy Mistakes

Uncertainty in Structural and Institutional Parameters and the Cost of Policy Mistakes

A Computable General Equilibrium Evaluation

Chapter:
(p.57) Chapter 4 Uncertainty in Structural and Institutional Parameters and the Cost of Policy Mistakes
Source:
Macroeconomics and Development
Author(s):

Omar Chisari

Gustavo Ferro

Juan Pablo Vila Martínez

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231175081.003.0004

this chapter analyses the role of parameter uncertainty in the design of macroeconomic policy. The authors use a Computable General Equilibrium (CGE) model to evaluate the effects of policy intervention (changes in the tax policy) when the policy maker is uncertain about the right level of two key parameters: the degree of international capital mobility and the degree of wage indexation in the economy. The experiments show that the greater the degree of international capital mobility and the higher the degree of indexation in the formal labor market, the greater the damage wrong policy choices will produce.

Keywords:   CGE models, parameter uncertainty, capital mobility, wage indexation, tax policy

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