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Real-time uncertainty in budget planning: evidence from euro area countries

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  • Maritta Paloviita
  • Pasi Ikonen

Abstract

Using rich panel data including potential output for euro area countries, we analyse budget balance forecasts and their errors. We find that budget balance forecasts are systematically biased and subject to mean reversion (tendency towards more balanced budgets). A robust result is that errors in budget balance nowcasts contribute to errors in budget balance forecasts. In addition, we find that nowcasted macroeconomic conditions can affect over-optimism in budget balance forecasts. Overall, our results emphasize the central role of nowcasting in the EU fiscal framework.

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  • Maritta Paloviita & Pasi Ikonen, 2018. "Real-time uncertainty in budget planning: evidence from euro area countries," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 21(4), pages 281-300, October.
    • Handle: RePEc:taf:jecprf:v:21:y:2018:i:4:p:281-300
    DOI: 10.1080/17487870.2018.1431126
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    2. 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.

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