US Fiscal Indicators, Inflation and Output

Yunus Aksoy and Giovanni Melina

No 918, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: In this paper we explore the information content of a large set of fiscal indicators for US real output growth and inflation. We provide evidence that fluctuations in certain fiscal variables contain valuable information to predict fluctuations in output and prices. The distinction between federal and state-local fiscal indicators yields useful insights and helps define a new set of stylized facts for US macroeconomic conditions. First, we find that variations in state-local indirect taxes as well as state government surplus or deficit help predict output growth. Next, the federal counterparts of these indicators contain valuable information for inflation. Finally, state-local expenditures help predict US inflation. A set of formal and informal stability tests confirm that these relationships are stable. The fiscal indicators in questions are also among the ones that yield the best in-sample and out-of-sample performances.

Date: 2009-12
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mac
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https://eprints.bbk.ac.uk/id/eprint/7603 First version, 2009 (application/pdf)

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Journal Article: U.S. fiscal indicators, inflation and output (2011)
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