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Cyclical sensitivity of fiscal policies based on real-time data

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Forni, Lorenzo
Momigliano, Sandro

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Abstract

This paper examines the information-related problems associated with the analysis of fiscal policies, an issue recently studied in connection with monetary policies but largely ignored in the literature on budgetary action. We estimate a fiscal policy rule for the EU and OECD countries using real-time data on cyclical conditions; the results indicate that over the last decade fiscal policies reacted strongly and counter-cyclically to adverse macroeconomic conditions. Using ex post data instead, the reaction to adverse cyclical conditions is weaker and not statistically significant. The results indicate that reliance on the information actually available to policy-makers in real-time is important for the assessment of past policies, as ex post revised data may provide a misleading basis for such analysis. The results also suggest that part of the problems the Stability and Growth Pact encountered may have come from a misjudgment of cyclical conditions in some European countries in recent years.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4315.

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Date of creation: 01 Dec 2004
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Publication status: Published in Applied Economics Quarterly 3-2004.50(2004): pp. 299-326
Handle: RePEc:pra:mprapa:4315

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Keywords: Real-time information OECD countries stabilization policies fiscal policy rules

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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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.:

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Cited by:
(explanations, 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. Candelon Bertrand & Muysken Joan & Vermeulen Robert, 2007. "Fiscal Policy and Monetary Integration in Europe: An Update," Research Memoranda 050, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  2. Buti, Marco & Martins, Joao Nogueira & Turrini, Alessandro Antonio, 2006. "From Deficits to Debt and Back: Political Incentives under Numerical Fiscal Rules," CEPR Discussion Papers 5809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Gábor P. Kiss, 2007. "Pain or Gain? Short-term Budgetary Effects of Surprise Inflation - the Case of Hungary," MNB Occasional Papers 2007/61, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  4. Andrew Hughes Hallett & Rasmus Kattai & John Lewis, 2007. "Early warning or just wise after the event? The problem of using cyclically adjusted budget deficits for fiscal surveillance," Bank of Estonia Working Papers 2007-02, Bank of Estonia, revised 09 Feb 2007. [Downloadable!]
    Other versions:
  5. John P. Jackson & Mark J. Manning, 2007. "Central Bank intraday collateral policy and implications for tiering in rtgs payment systems," DNB Working Papers 129, Netherlands Central Bank, Research Department. [Downloadable!]
  6. Andrew Hughes Hallet & Rasmus Kattai & John Lewis, 2007. "Early Warning or Just Wise After the Event?," DNB Working Papers 124, Netherlands Central Bank, Research Department. [Downloadable!]
  7. Kerstin Bernoth & Andrew Hughes Hallet & John Lewis, 2008. "Did fiscal policy makers know what they were doing? Reassessing fiscal policy with real-time data," DNB Working Papers 169, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  8. 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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