Fiscal Policy Design in Greece in the Aftermath of the Crisis: An Algorithmic Approach

We present a computational approach to the design of fiscal policy that is based on algorithmic, linear feedback control methods. In particular, in the context of a linear, deterministic macro-model, we develop an algorithmic procedure which allows us to design fiscal policy rules for government expenditures so that desired target-levels for GDP are exactly met (that is, complete tracking is achieved). In order to examine the effectiveness of our method we estimate the model for the Greek economy and run some counterfactual policy experiments. These experiments indicate that, for the Greek economy in the beginning of the crisis in early 2010, expansionary fiscal policy would have been able to stimulate growth and reduce the debt-to-GDP ratio.