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Primary balance and debt projections based on estimated fiscal reaction functions for euro area countries

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  • Martin Plödt
  • Claire Reicher

Abstract

We project the path of the public debt and primary balances for a number of countries in the euro area under a fiscal rule based on a set of estimated fiscal policy reaction functions. Our fiscal rule represents a fiscal analogue to a well-known monetary policy rule, and it is calibrated using country-specific as well as euro area-wide parameter estimates. We then forecast the dynamics of the fiscal aggregates under different convergence, growth, and interest rate scenarios and investigate the implications of these scenarios in projecting the future path of fiscal aggregates. We argue that our forecasting methodology may be used to deliver insights into the medium-run effects of different fiscal policy rules and to provide some early warning of future fiscal pressures.

Suggested Citation

  • Martin Plödt & Claire Reicher, 2014. "Primary balance and debt projections based on estimated fiscal reaction functions for euro area countries," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 111-134.
  • Handle: RePEc:cai:reofsp:reof_132_0111
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    Cited by:

    1. Plödt, Martin & Reicher, Claire, 2014. "Estimating simple fiscal policy reaction functions for the euro area countries," Kiel Working Papers 1899, Kiel Institute for the World Economy (IfW).

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    Keywords

    fiscal rules; fiscal policy; euro area; forecasting;

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