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Fiscal policy and growth forecasts in the EU: are official forecasters still misestimating fiscal multipliers?

Author

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  • David Cronin

    (Central Bank of Ireland, and Economic and Social Research Institute (ESRI))

  • Kieran McQuinn

    (Central Bank of Ireland, and Economic and Social Research Institute (ESRI))

Abstract

Blanchard and Leigh (Am Econ Rev 103(3):117–120, 2013; IMF Econ Rev 62(2):179–212, 2014) find fiscal multipliers to be underestimated in the EU in the deep recession of the early 2010s. Using two 2013–2018 datasets for 26 EU member states, assembled from Stability and Convergence Programmes and the European Commission’s Spring Forecasts, this paper shows that multiplier estimates in the EU have been overestimated in the post-crisis period. Forecasters then are still not capturing accurately the impact that fiscal policy has on output growth rates and are misestimating in a manner opposite to that reported by Blanchard and Leigh.

Suggested Citation

  • David Cronin & Kieran McQuinn, 2021. "Fiscal policy and growth forecasts in the EU: are official forecasters still misestimating fiscal multipliers?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 453-462, August.
    • Handle: RePEc:spr:weltar:v:157:y:2021:i:3:d:10.1007_s10290-021-00428-z
    DOI: 10.1007/s10290-021-00428-z
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    References listed on IDEAS

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    1. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.
    2. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
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    6. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    7. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts [‘Fiscal forecasting: The track record of the IMF, OECD and EC’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(47), pages 492-534.
    8. Romano, Joseph P. & Wolf, Michael, 2017. "Resurrecting weighted least squares," Journal of Econometrics, Elsevier, vol. 197(1), pages 1-19.
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    10. Döhrn Roland & Schmidt Christoph M., 2011. "Information or Institution?: On the Determinants of Forecast Accuracy," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(1), pages 9-27, February.
    11. Olivier J Blanchard & Daniel Leigh, 2014. "Learning about Fiscal Multipliers from Growth Forecast Errors," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(2), pages 179-212, June.
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    Cited by:

    1. Daniel Gros & Alessandro Liscai & Farzaneh Shamsfakhr, 2022. "Planned Fiscal Consolidation and Under-Estimated Multipliers: Revisiting the Evidence and Relevance for the Euro Area," EconPol Policy Reports 35, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Kumar Verma, Akhilesh & McQuinn, Kieran, 2024. "Assessing expectations of European house prices," Papers WP783, Economic and Social Research Institute (ESRI).
    3. Tsuchiya, Yoichi, 2023. "Assessing the World Bank’s growth forecasts," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 64-84.
    4. Jakub Rybacki & Michał Gniazdowski, 2023. "Macroeconomic forecasting in Poland: lessons from the external shocks," Bank i Kredyt, Narodowy Bank Polski, vol. 54(1), pages 45-64.

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    More about this item

    Keywords

    Fiscal policy; Multipliers; Forecast errors;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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