Common fluctuations in OECD budget balances

Christopher Neely and David E. Rapach

No 2009-055, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We analyze comovements in four measures of budget surpluses for 18 OECD countries for 1980-2008 with a dynamic latent factor model. The world factor in national budget surpluses declines substantially in the 1980s, rises throughout much of the 1990s to a peak in 2000, before declining again in the most recent period. This world factor explains a substantial portion of the variability in budget surpluses across countries. World factors in national output gaps, dividend-price ratios, and military spending significantly explain variation in the world budget surplus factor. The significant relationship between national output gaps and OECD measures of cyclically adjusted budget surpluses suggests that such cyclical measures inadequately adjust for the international business cycle. Sizable fluctuations in idiosyncratic components of national budget surpluses often readily relate to well known \"unusual\" country circumstances.

Keywords: Budget; Organisation for Economic Co-operation and Development (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cba
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Journal Article: Common Fluctuations in OECD Budget Balances (2015)
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