Stabilising Chaos and Optimising Impact: Policy Evaluation in a Structural Macroeconomic Model

Abstract

The purpose of this paper is to construct a structural macroeconomic model to design monetary and fiscal policies aimed at attaining macroeconomic objectives. The study further attempts to simulate a baseline and policy scenario to evaluate the impact of such monetary and fiscal policy interventions on economy. To achieve the above objectives, the study benefits from both the concept of financial programming approach and vector error correction econometric techniques to build up an interconnected network among the four main areas of economy: real sector, external sector, government sector and monetary sector. Such efforts are expected not just to maximise the synergies across the two different approaches but also to minimise the challenges and limitations associated with them. This paper then discusses the empirically driven results from the application of Costa Rican economy and finally ends with a number of macro-policy implications and suggests topics for future research.