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Early warning or just wise after the event? The problem of using cyclically adjusted budget deficits for fiscal surveillance

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Author Info
Andrew Hughes Hallett ()
Rasmus Kattai ()
John Lewis ()

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Abstract

The effectiveness of cyclically adjusted balances (CABs) as an indicator of the health of public finances depends on the accuracy with which cyclically adjusted figures can be calculated in real time. This paper measures the accuracy of such figures using a specially constructed real time dataset containing published values of deficits, output gaps and cyclically adjusted deficits from successive issues of OECD economic outlook. We find that data revisions are so great that real-time CABs have low power in detecting fiscal slippages as defined by the ex post data.

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File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2007/_2_2007/_wp_207.pdf
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Publisher Info
Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2007-02.

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Date of creation: 09 Feb 2007
Date of revision: 09 Feb 2007
Handle: RePEc:eea:boewps:wp2007-02

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Related research
Keywords: fiscal surveillance; cyclically adjusted budget balance; real time data;

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Find related papers by JEL classification:
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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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. Beetsma, Roel & Giuliodori, Massimo, 2007. "On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data," CEPR Discussion Papers 6088, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Buti, Marco & Eijffinger, Sylvester C W & Franco, Daniele, 2003. "Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?," CEPR Discussion Papers 3692, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers 2374, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. J. de Haan & H. Berger & D. Jansen, 2003. "The end of the stability and growth pact?," WO Research Memoranda (discontinued) 748, Netherlands Central Bank, Research Department. [Downloadable!]
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  5. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September. [Downloadable!] (restricted)
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  6. Lorenzo Forni & Sandro Momigliano, 2004. "Cyclical sensitivity of fiscal policies based on real-time data," Temi di discussione (Economic working papers) 540, Bank of Italy, Economic Research Department. [Downloadable!]
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  7. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada. [Downloadable!]
  8. Alain Guay & Pierre St-Amant, 1997. "Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?," Cahiers de recherche CREFE / CREFE Working Papers 53, CREFE, Université du Québec à Montréal. [Downloadable!]
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  1. Beetsma, Roel & Giuliodori, Massimo, 2007. "On the Relationship between Fiscal Plans in the European Union: An Empirical Analysis Based on Real-Time Data," CEPR Discussion Papers 6088, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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