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Short-term monitoring of fiscal policy discipline

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Author Info

  • Gonzalo Camba-Mendez

    (Directorate of Research, European Central Bank, Frankfurt am Main, Germany)

  • Ana Lamo

    (Directorate of Research, European Central Bank, Frankfurt am Main, Germany)

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Abstract

Under the Maastricht Treaty and the Stability and Growth Pact (SGP), European Union (EU) Member States commit themselves to avoid excessive deficits over 3% of GDP and to pursue the medium-term objective of budgetary positions close to balance or in surplus. The SGP also provides regulation for the surveillance of budgetary positions. An analysis of tools for the surveillance of budgetary positions is the focus of this paper. In particular, it addresses two open issues in the empirical public finance literature which are crucial for monitoring fiscal policy discipline in the EU. First, the estimation of the structural component of the fiscal balance ratio. Second, the computation, when only annual fiscal data are available, of quarterly budget balance ratios, using relevant information from quarterly measured macroeconomic series. An econometric model that addresses both issues is presented and estimated. Additionally, this modelling framework allows us to answer questions such as: what is the safety margin that will prevent a particular country from reaching, with certain probability, a budget deficit that breaches the 3% upper bound? Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.728
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 19 (2004)
Issue (Month): 2 ()
Pages: 247-265

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Handle: RePEc:jae:japmet:v:19:y:2004:i:2:p:247-265

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  1. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
  3. Matthew Canzoneri & Behzad Diba, 1999. "The Stability and Growth Pact: A Delicate Balance or an Albatross?," Empirica, Springer, vol. 26(3), pages 241-258, September.
  4. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Publishing.
  5. repec:fth:banfra:60 is not listed on IDEAS
  6. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers 1772, C.E.P.R. Discussion Papers.
  7. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
  8. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
  9. Alesina, Alberto & Perotti, Roberto, 1996. "Fiscal Discipline and the Budget Process," American Economic Review, American Economic Association, vol. 86(2), pages 401-07, May.
  10. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
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  12. King, Robert G. & Plosser, Charles I., 1985. "Money, deficits, and inflation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 147-195, January.
  13. Herschel I. Grossman, 1982. "The American Fiscal Deficit: Facts and Effects," NBER Working Papers 0934, National Bureau of Economic Research, Inc.
  14. Fernandez, Roque B, 1981. "A Methodological Note on the Estimation of Time Series," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 471-76, August.
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Cited by:
  1. Teresa Leal & Javier J. Pérez, 2004. "Monitorización de objetivos fiscales anuales: una aplicación con datos regionales," Economic Working Papers at Centro de Estudios Andaluces E2004/66, Centro de Estudios Andaluces.
  2. Pedregal, Diego J. & Pérez, Javier J., 2010. "Should quarterly government finance statistics be used for fiscal surveillance in Europe?," International Journal of Forecasting, Elsevier, vol. 26(4), pages 794-807, October.
  3. Onorante, Luca & Pedregal, Diego J. & Pérez, Javier J. & Signorini, Sara, 2008. "The usefulness of infra-annual government cash budgetary data for fiscal forecasting in the euro area," Working Paper Series 0901, European Central Bank.
  4. SILVESTRINI, Andrea & SALTo, Matteo & MOULIN, Laurent & VEREDAS, David, . "Monitoring and forecasting annual public deficit every month: the case of France," CORE Discussion Papers RP -2019, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Paulo Soares Esteves & Cláudia Braz, 2013. "Short-term forecasting of indirect tax revenues: an application for Portugal," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  6. Pérez, Javier J., 2005. "Early-warning tools to forecast general government deficit in the euro area: the role of intra-annual fiscal indicators," Working Paper Series 0497, European Central Bank.
  7. Perez, Javier J., 2007. "Leading indicators for euro area government deficits," International Journal of Forecasting, Elsevier, vol. 23(2), pages 259-275.
  8. Laurent Moulin & Matteo Sala & Andrea Silvestrini & David Veredas, 2008. "Using intra annual information to forecast the annual state deficit. The case of France," ULB Institutional Repository 2013/136217, ULB -- Universite Libre de Bruxelles.

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