Testing for the footprints of stabilization economic policy in forecast errors

Wojciech Charemza, Christian Francq (), Radu Lupu, Svetlana Makarova () and Jean-Michel Zakoïan
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Wojciech Charemza: University of Leicester
Christian Francq: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, IP Paris - Institut Polytechnique de Paris
Radu Lupu: A.S.E. - The Bucharest University of Economic Studies / Academia de Studii Economice din Bucureşti
Svetlana Makarova: ANU College of Science [Canberra] - ANU - Australian National University
Jean-Michel Zakoïan: CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique

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Abstract: This paper introduces a novel statistical test, the Policy Effects Lagrange Multiplier (PELM) test, to detect stabilization policy effects in the distribution of forecast errors from dynamic financial models. Traditional analyses of policy impact typically rely on explicit policy information or direct intervention data, which are often unavailable or incomplete. In contrast, the proposed PELM test infers policy footprints from the distribution of forecast errors alone. Empirically applied to sovereign bond yield data from 33 countries before the Russian financial crisis of 2014, the test identifies countries showing stabilization policy footprints. Subsequent analysis shows that significant budgetary improvements were observed for years following the crisis in the group of countries where our test statistically confirmed stabilization policies. This confirms the rationale of test foundations and also indicates its predictive properties. Robustness checks further validate these findings across various model specifications and sensitivity scenarios. The proposed PELM test offers policymakers and researchers a powerful tool for evaluating stabilization policies, facilitating better forecasting and assessing policy efficiency in diverse economic contexts without necessitating detailed policy intervention data.

Date: 2025-12-01
Note: View the original document on HAL open archive server: https://hal.science/hal-05430912v1
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Published in PLoS ONE, 2025, 20 (12), pp.e0336495. ⟨10.1371/journal.pone.0336495⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05430912

DOI: 10.1371/journal.pone.0336495

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