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Cyclical sensitivity of fiscal policies based on real-time data

Author

Listed:
  • Lorenzo Forni

    (Bank of Italy)

  • Sandro Momigliano

    (Bank of Italy)

Abstract

This paper examines the information-related problems associated with the analysis of fiscal policies, an issue recently analyzed in connection with monetary policies but largely ignored in the literature on budgetary actions. The results indicate that reliance on the information actually available to policy-makers in real-time is important for the assessment of past policies. We show that estimating fiscal policy rules based on ex post revised data tends to provide a misleading assessment of the sensitivity of discretionary policies to cyclical conditions. The results also suggest that part of the problems the Stability and Growth Pact encountered may have come from a misjudgment of cyclical conditions in some European countries in recent years.

Suggested Citation

  • Lorenzo Forni & Sandro Momigliano, 2004. "Cyclical sensitivity of fiscal policies based on real-time data," Temi di discussione (Economic working papers) 540, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_540_04
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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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