Growth Forecast Errors and Fiscal Multipliers
Olivier Blanchard and
Daniel Leigh
No 2013/001, IMF Working Papers from International Monetary Fund
Abstract:
This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.
Keywords: WP; forecast error; fiscal multiplier; least squares; liquidity trap; potential GDP; Fiscal policy; forecasting; taxation; government expenditure; output fluctuations; estimation result; reports IMF staff assumption; IMF staff note; WEO database; estimation strategy; a number of economy; estimation code; Fiscal consolidation; Fiscal multipliers; Fiscal stance; Europe (search for similar items in EconPapers)
Pages: 43
Date: 2013-01-03
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