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Growth Forecast Errors and Fiscal Multipliers

Olivier Blanchard () and Daniel Leigh

No 13/1, 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: Economic growth; Economic forecasting; Economic models; Fiscal policy; Forecasting; Government expenditures; Taxation; government expenditure, output fluctuations, fiscal consolidation, fiscal multipliers, growth forecast, fiscal balance, General, General, Forecasts of Budgets, Deficits, and Debt, (search for similar items in EconPapers)
Date: 2013-01-03
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