What did forecasters learn during the European sovereign debt crisis about the impact of fiscal policies on economic growth?

Lucyna Gόrnicka, Christophe Kamps (), Gerrit Koester and Nadine Leiner-Killinger
Authors registered in the RePEc Author Service: Lucyna Gornicka

Research Bulletin, 2018, vol. 49

Abstract: Economists often try to forecast whether the economy as a whole will grow or contract. When measuring the effects of fiscal policy measures on economic activity, such forecasts are based on so-called multipliers. Using a new dataset compiled from economic forecasts and recommendations by the European Commission under the excessive deficit procedure of the Stability and Growth Pact, we derive the multipliers that were assumed by forecasters during the European sovereign debt crisis to project the effects of fiscal consolidation on economic growth. Our results confirm that forecasters adapted their assumptions on multipliers as the crisis progressed and accounted for larger effects of consolidation on growth later on in the crisis. Another finding is that the actual fiscal multipliers were not exceptionally large during the crisis. JEL Classification: E32, E62, H20, H5

Keywords: business cycle; fiscal consolidation; fiscal multipliers (search for similar items in EconPapers)
Date: 2018-09
Note: 491621
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