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Improving fiscal policy in the EU: the case for independent forecasts

  • Lars Jonung
  • Martin Larch

type="main" xml:lang="en"> We point out that official forecasts of output dynamics are crucial to the assessment of cyclically adjusted budget balances, and provide evidence that in some euro-area countries biased forecasts have played a thus far neglected role in generating excessive deficits. We suggest that the forecast bias may be politically motivated, and that forecasts produced by an independent authority would be better than in-house Ministry of Finance forecasts for the purpose of monitoring budget formation and budget outcomes. — Lars Jonung and Martin Larch

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Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 21 (2006)
Issue (Month): 47 (07)
Pages: 491-534

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Handle: RePEc:bla:ecpoli:v:21:y:2006:i:47:p:491-534
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  1. Rolf Strauch & Mark Hallerberg & Jürgen von Hagen, 2004. "Budgetary Forecasts in Europe – The Track Record of Stability and Convergence Programmes," Economic Working Papers at Centro de Estudios Andaluces E2004/42, Centro de Estudios Andaluces.
  2. Artis, M. & Marcellino, M., 1999. "Fiscal Forecasting: the Track Record of the IMF, OECD and EC," Economics Working Papers eco99/22, European University Institute.
  3. Bretschneider, Stuart I. & Gorr, Wilpen L. & Grizzle, Gloria & Klay, Earle, 1989. "Political and organizational influences on the accuracy of forecasting state government revenues," International Journal of Forecasting, Elsevier, vol. 5(3), pages 307-319.
  4. Beetsma, Roel & Debrun, Xavier, 2003. "Reconciling Stability and Growth: Smart Pacts and Structural Reforms," CEPR Discussion Papers 3930, C.E.P.R. Discussion Papers.
  5. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," IMF Working Papers 96/52, International Monetary Fund.
  6. Forni, Lorenzo & Momigliano, Sandro, 2004. "Cyclical sensitivity of fiscal policies based on real-time data," MPRA Paper 4315, University Library of Munich, Germany.
  7. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
  8. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  9. Wren-Lewis, Simon, 2000. "The Limits to Discretionary Fiscal Stabilization Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 92-105, Winter.
  10. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
  11. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  12. M. Buti & D. Franco & H. Ongena, 1997. "Budgetary Policies during Recessions - Retrospective Application of the "Stability and Growth Pact" to the Post-War Period," European Economy - Economic Papers 121, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  13. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
  14. Lars Jonung, 2002. "EMU and the euro - the first 10 years. Challenges to the sustainability and price stability of the euro area - what does history tell us?," European Economy - Economic Papers 165, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  15. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, 03.
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