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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, with the relation being 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 reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/1.

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Length: 43
Date of creation: 03 Jan 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/1

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Keywords: Economic growth; Fiscal policy; Government expenditures; Economic forecasting; Economic models; taxation; output fluctuations; fiscal consolidation; fiscal multipliers; growth forecast; fiscal balance; structural fiscal; government spending; fiscal stimulus; spending cuts; panel regressions; regression approach; fiscal adjustment; regression line; baseline regression; regression results; fiscal balance in percent; fiscal consolidations; government revenue; fiscal shock; growth forecasts; tax increases; public expenditures; fiscal expansion; tax changes; public finances; regression coefficient; fiscal accounts; fiscal consolidation on growth; growth projections; discretionary fiscal stimulus; budget balance; structural budget balance;

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  1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5644, C.E.P.R. Discussion Papers.
  2. Almunia, Miguel & Bénétrix, Agustín & Eichengreen, Barry & O Rourke, Kevin H. & Rua, Gisela, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7564, C.E.P.R. Discussion Papers.
  3. Anja Baum & Marcos Poplawski-Ribeiro & Anke Weber, 2012. "Fiscal Multipliers and the State of the Economy," IMF Working Papers 12/286, International Monetary Fund.
  4. Alan J. Auerbach & Yuriy Gorodnichenko, 2011. "Fiscal Multipliers in Recession and Expansion," NBER Working Papers 17447, National Bureau of Economic Research, Inc.
  5. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, American Economic Association, vol. 103(3), pages 141-46, May.
  6. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  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. Effects of austerity revisited – how GDP surprised and why?
    by ? in Bruegel blog on 2013-03-22 10:25:27
  2. Quelle est la taille du multiplicateur budgétaire ?
    by ? in D'un champ l'autre on 2014-01-17 21:59:00
  3. Cet inébranlable optimisme des prévisions de croissance
    by ? in D'un champ l'autre on 2014-07-08 17:00:00
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