Modeling and control of the German economy

Raising deficits and stocks of public debt have been a serious issue for economic policy makers in Europe since the beginning of the seventies of the last century. The paper analyses different sets of optimal fiscal consolidation measures within the framework of an econometric partial disequilibrium model of Germany and applying the optimization algorithm OPTCON. Welfare losses in terms of output reduction are found to be rather low. Moreover, in the paper several methodological issues concerning the modeling and control of disequilibrium models are covered