Important reference values for this assessment are a government deficit level of 3% of GDP and a debt-to-GDP ratio of 60%. In addition, countries have committed themselves in the Stability and Growth Pact to respect the medium-term objective of a budgetary position of “close to balance or in surplus” .
This approach has the merit that it is not constrained by a particular specification of the underlying structural relationships, and it provides evidence on the intertemporal response of the price level and output to a change in the monetary policy stance.