Cyclical sensitivity of fiscal policies based on real-time data

Lorenzo Forni and Sandro Momigliano

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the information-related problems associated with the analysis of fiscal policies, an issue recently studied in connection with monetary policies but largely ignored in the literature on budgetary action. We estimate a fiscal policy rule for the EU and OECD countries using real-time data on cyclical conditions; the results indicate that over the last decade fiscal policies reacted strongly and counter-cyclically to adverse macroeconomic conditions. Using ex post data instead, the reaction to adverse cyclical conditions is weaker and not statistically significant. The results indicate that reliance on the information actually available to policy-makers in real-time is important for the assessment of past policies, as ex post revised data may provide a misleading basis for such analysis. The results also suggest that part of the problems the Stability and Growth Pact encountered may have come from a misjudgment of cyclical conditions in some European countries in recent years.

Keywords: Real-time information; OECD countries; stabilization policies; fiscal policy rules (search for similar items in EconPapers)
JEL-codes: E61 E62 (search for similar items in EconPapers)
Date: 2004-12-01
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Citations: View citations in EconPapers (71)

Published in Applied Economics Quarterly 3-2004.50(2004): pp. 299-326

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Related works:
Working Paper: Cyclical sensitivity of fiscal policies based on real-time data (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:4315

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