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Fiscal targets. A guide to forecasters?

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  • Paredes-Lodeiro, Joan
  • Pérez, Javier J
  • Pérez-Quirós, Gabriel

Abstract

Should rational agents take into consideration government policy announcements? A skilled agent (an econometrician) could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real-time: (i) the ex-ante path of policy as published/announced by the government; (ii) incoming, observed data on the actual degree of implementation of ongoing plans. We formulate and estimate empirical models for a number of EU countries (Germany, France, Italy, and Spain) to show that government (consumption) targets convey useful information about ex-post policy developments when policy changes significantly (even if past credibility is low) and when there is limited information about the implementation of plans (e.g. at the beginning of a fiscal year). In addition, our models are instrumental to unveil the current course of policy in real-time. Our approach complements a well-established branch of the literature that finds politically-motivated biases in policy targets.

Suggested Citation

  • Paredes-Lodeiro, Joan & Pérez, Javier J & Pérez-Quirós, Gabriel, 2015. "Fiscal targets. A guide to forecasters?," CEPR Discussion Papers 10553, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10553
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    Cited by:

    1. Lemoine, Matthieu & Lindé, Jesper, 2016. "Fiscal consolidation under imperfect credibility," European Economic Review, Elsevier, vol. 88(C), pages 108-141.
    2. Chernis, Tony & Cheung, Calista & Velasco, Gabriella, 2020. "A three-frequency dynamic factor model for nowcasting Canadian provincial GDP growth," International Journal of Forecasting, Elsevier, vol. 36(3), pages 851-872.
    3. Alberto Cavallo & Guillermo Cruces & Ricardo Perez-Truglia, 2016. "Learning from Potentially-Biased Statistics: Household Inflation Perceptions and Expectations in Argentina," NBER Working Papers 22103, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    fiscal policy; forecasting; policy credibility;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • 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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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