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Growth Forecast Errors and Fiscal Multipliers

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  • Olivier J. Blanchard
  • Daniel Leigh

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. The relation is 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 in part reflect learning by forecasters and in part smaller multipliers than in the early years of the crisis.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.3.117
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File URL: http://www.aeaweb.org/aer/ds/may2013/P2013_4351_ds.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 3 (May)
Pages: 117-20

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:117-20

Note: DOI: 10.1257/aer.103.3.117
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  1. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, vol. 103(3), pages 141-46, May.
  2. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.
  3. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
  4. Alan J. Auerbach & Yuriy Gorodnichenko, 2011. "Fiscal Multipliers in Recession and Expansion," NBER Working Papers 17447, National Bureau of Economic Research, Inc.
  5. Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," NBER Working Papers 15524, National Bureau of Economic Research, Inc.
  6. Anja Baum & Marcos Poplawski-Ribeiro & Anke Weber, 2012. "Fiscal Multipliers and the State of the Economy," IMF Working Papers 12/286, International Monetary Fund.
  7. Giovanni Callegari & Giovanni Melina & Nicoletta Batini, 2012. "Successful Austerity in the United States, Europe and Japan," IMF Working Papers 12/190, International Monetary Fund.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Quelle est la taille du multiplicateur budgétaire ?
    by ? in D'un champ l'autre on 2014-01-17 21:59:00
  2. Cet inébranlable optimisme des prévisions de croissance
    by ? in D'un champ l'autre on 2014-07-08 17:00:00
  3. Effects of austerity revisited – how GDP surprised and why?
    by ? in Bruegel blog on 2013-03-22 10:25:27
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