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An Evaluation of the OECD Cyclically-Adjusted Primary Government Balance Forecasts

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  • Jef Vuchelen
  • Jesse De Wit
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    Abstract

    Forecasts of the cyclically-adjusted primary government balance are, potentially, informative as to the stance of future fiscal policies. This is sustained by the fiscal surveillance procedure for Eurozone members since the reformed Stability and Growth Pact of 2005. However, the quality of these forecasts has never been analyzed. We evaluate the properties of the December forecasts of the cyclically-adjusted primary government balance by the OECD for 19 countries. The forecasts for the current year, nowcasts, are reasonably accurate; the quality of the one-year-ahead and the two-year-ahead forecasts deteriorates however sharply when the forecast horizon increases. Despite their poor quality, forecasts are mostly unbiased and efficient and thus rational. Simple alternative forecasts for the cyclically-adjusted primary government balance do not systematically outperform the forecasts by the OECD.

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    Bibliographic Info

    Article provided by ULB -- Universite Libre de Bruxelles in its journal Brussels economic review.

    Volume (Year): 51 (2008)
    Issue (Month): 4 ()
    Pages: 459-479

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    Handle: RePEc:bxr:bxrceb:2013/80125

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    Related research

    Keywords: Macroeconomic forecasting; Monitoring forecasts; Regression; Statistical test; Government forecasting;

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    1. Enrique Alberola & José M. González Mínguez & Pablo Hernández de Cos & José M. Marqués, 2003. "How cyclical do cyclically-adjusted balances remain? An EU study," Hacienda Pública Española, IEF, vol. 166(3), pages 151-181, September.
    2. Jana Kremer & Cláudia Braz & Teunis Brosens & Geert Langenus & Sandro Momigliano & Mikko Spolander, 2006. "A disaggregated framework for the analysis of structural developments in public finances," Working Papers w200607, Banco de Portugal, Economics and Research Department.
    3. Tilman Brück & Andreas Stephan, 2005. "Do Eurozone Countries Cheat with Their Budget Deficit Forecasts?," Discussion Papers of DIW Berlin 508, DIW Berlin, German Institute for Economic Research.
    4. Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001. "Cyclically adjusted budget balances: an alternative approach," Working Paper Series 0077, European Central Bank.
    5. Isabelle Joumard & Makoto Minegishi & Christophe André & Chantal Nicq & Robert W.R. Price, 2008. "Accounting for One-off Operations when Assessing Underlying Fiscal Positions," OECD Economics Department Working Papers 642, OECD Publishing.
    6. Rolf Strauch & Mark Hallerberg & Jürgen von Hagen, 2004. "Budgetary Forecasts in Europe – The Track Record of Stability and Convergence Programmes," Economic Working Papers at Centro de Estudios Andaluces E2004/42, Centro de Estudios Andaluces.
    7. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
    8. repec:fth:eeccco:137 is not listed on IDEAS
    9. Larch, Martin & Turrini, Alessandro, 2009. "The Cyclically Adjusted Budget Balance in EU Fiscal Policymaking. Love at First Sight Turned into a Mature Relationship," MPRA Paper 20594, University Library of Munich, Germany.
    10. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
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