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Cyclically adjusted budget balances: an alternative approach

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Author Info
Philippine Cour-Thimann () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Pablo Hernandez Cos () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Matthias F. Mohr () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Mika Tujula () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Carine Bouthevillain () (Banque de France, 41-1376 DEER-SEMEF, 39 Rue Croix de Petits Champs, 75049 Paris Cedex 01, France.)
Geert Langenus () (National Bank of Belgium, 14, boulevard de Berlaimont, 1000 Brussels, Belgium.)
Sandro Momigliano () (Banca d´Italia, Servizio Studi,Via Nazionale, 91, 00184, Roma, Italy.)
Gerrit Van Den Dool () (Organization for Economic Co-Operation and Development (OECD) - Directorate for Employment, Labour and Social Affairs (ELS); 2 rue Andre Pascal, 75775 Paris Cedex 16, France.)

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Abstract

Estimates of cyclically-adjusted budget balances, correcting actual government budget balances for business cycle fluctuations, are produced by many institutions. This paper presents an alternative approach for the cyclical adjustment of budget balances. The approach is based on a disaggregated method for the calculation of the cyclical component of the budget balance. In this approach, the effects of changes in theA structure of demand and national income on government revenue and expenditure are captured. Cases where the various macroeconomic bases are in different phases of the cycle or exhibit fluctuations of different magnitude are taken into account in this way. The computation of the cyclical components of these macroeconomic bases is based on the Hodrick-Prescott filter and takes into account the latest evidence presented in the literature about the properties of this filter. The paper also presents new estimates of the elasticities of individual budget items with respect to the relevant macroeconomic variables. JEL Classification: E32; E60.

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Paper provided by European Central Bank in its series Working Paper Series with number 077.

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Length: 88 pages
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:ecb:ecbwps:20010077

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Related research
Keywords: fiscal policy; government budget; cyclical adjustment; business cycles.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Regina Kaiser & Agustín Maravall, 1999. "Estimation of the Business Cycle: a Modified Hodrick-Prescott Filter," Banco de España Working Papers 9912, Banco de España.
  2. Regina Kaiser & Agustín Maravall, 1999. "Estimation of the Business Cycle: a Modified Hodrick-Prescott Filter," Banco de España Working Papers 9912, Banco de España.
  3. Regina Kaiser & Agustín Maravall, 1999. "Estimation of the business cycle: A modified Hodrick-Prescott filter," Spanish Economic Review, Springer, vol. 1(2), pages 175-206. [Downloadable!] (restricted)
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