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Real-time macro monitoring and fiscal policy

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  • Ley, Eduardo
  • Misch, Florian

Abstract

This paper considers the effects of inaccurate real-time output data on fiscal management, both with respect to budgetary planning and fiscal surveillance. As newer and better information becomes available, output data available in real time get revised and are likely to conflict with final figures that are only released some years later. Nevertheless, fiscal policy needs to be inevitably based on real-time figures. The paper develops a simple modeling framework to formalize these linkages and combines it with a newly compiled dataset from the International Monetary Fund's World Economic Outlook, comprising final and real-time output data for 175 countries, over a period of 17 years. We simulate the effects of output revisions on revisions of the overall balance, the structural balance and debt accumulation. It finds that output revisions may have substantial effects on the ability of governments to correctly estimate the overall balance and the structural fiscal balance in real time, and that the effects may imply substantial debt accumulation.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6303.

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Date of creation: 01 Jan 2013
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Handle: RePEc:wbk:wbrwps:6303

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Related research

Keywords: Emerging Markets; Economic Theory&Research; Debt Markets; Fiscal&Monetary Policy; Science Education;

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References

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  1. Francisco Castro & Javier J. Pérez & Marta Rodríguez‐Vives, 2013. "Fiscal Data Revisions in Europe," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1187-1209, 09.
  2. Athanasios Orphanides & Simon van Norden, 2001. "The Unreliability of Output Gap Estimates in Real Time," CIRANO Working Papers 2001s-57, CIRANO.
  3. Cimadomo, Jacopo, 2011. "Real-time data and fiscal policy analysis: a survey of the literature," Working Paper Series 1408, European Central Bank.
  4. Frank-Oliver Aldenhoff, 2007. "Are economic forecasts of the International Monetary Fund politically biased? A public choice analysis," The Review of International Organizations, Springer, vol. 2(3), pages 239-260, September.
  5. Sven Langedijk & Martin Larch, 2007. "Testing the EU fiscal surveillance: How sensitive is it to variations in output gap estimates?," European Economy - Economic Papers 285, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Andrew Hughes Hallett & Rasmus Kattai & John Lewis, 2012. "How Reliable Are Cyclically Adjusted Budget Balances In Real Time?," Contemporary Economic Policy, Western Economic Association International, vol. 30(1), pages 75-92, 01.
  7. Massimiliano Marcellino & Alberto Musso, 2010. "the Reliability of Real Time Estimates of the EURO Area Output Gap," Economics Working Papers ECO2010/06, European University Institute.
  8. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
  9. Álvaro Pina & Nuno Venes, 2007. "The Political Economy of EDP Fiscal Forecasts: An Empirical Assessment," Working Papers Department of Economics 2007/23, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  10. Leal, Teresa & Pérez, Javier J. & Tujula, Mika & Vidal, Jean-Pierre, 2007. "Fiscal forecasting: lessons from the literature and challenges," Working Paper Series 0843, European Central Bank.
  11. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  12. Auerbach, Alan J, 1995. "Tax Projections and the Budget: Lessons from the 1980's," American Economic Review, American Economic Association, vol. 85(2), pages 165-69, May.
  13. Ildeberta Abreu, 2011. "International organisations’ vs. private analysts’ growth forecasts: an evaluation," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  14. Allan Timmermann, 2006. "An Evaluation of the World Economic Outlook Forecasts," IMF Working Papers 06/59, International Monetary Fund.
  15. Victor Duarte Lledo & Marcos Poplawski-Ribeiro, 2011. "Fiscal Policy Implementation in Sub-Saharan Africa," IMF Working Papers 11/172, International Monetary Fund.
  16. Frankel, Jeffrey A., 2011. "Over-optimism in Forecasts by Official Budget Agencies and its Implications," Scholarly Articles 8705906, Harvard Kennedy School of Government.
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Cited by:
  1. Ansgar Belke, 2014. "Monetary Dialogue 2009-2014 – Looking Backward, Looking Forward," Ruhr Economic Papers 0477, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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