Modelling Anticipated and Temporary Fiscal Policy Shocks in a Macro-econometric Model of Canada.

Following the work of Ray Fair (1979), expectations terms in the FOCUS model are generated using predicted values from the model itself. Expectations are therefore "consistent" with the model struct ured. Government expenditure multipliers are compared for the standar d model and the CE version. Three further examples show the power of the technique as applied to the analysis of fiscal policy shocks. T he first considers a temporary versus a permanent income tax surcharg e. The second considers the possibility of an "anticipatory recession " when preannounced fiscal stimulus is combined with monetary restrai nt. The third examines the planned restructuring of the Canadian corp orate tax system.