Stabilizing chaos and optimizing impact: policy evaluation in a structural macroeconomic model

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 economies. To achieve the above objectives, the study benefits from both the concept of the financial programming approach and vector error correction econometric techniques to build up an interconnected network among the four main areas of an economy: real sector, external sector, government sector, and monetary sector. Such efforts are expected not just to maximize the synergies across the two different approaches but also to minimize the challenges and limitations associated with them. This paper then discusses the empirically-driven results from the application of the Costa Rican economy and finally ends with several macro-policy implications and suggests topics for future research.