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Can we rely on real time figures for cyclically adjusted budget balances?

Author

Listed:
  • Andrew Hughes Hallett

    ()

  • Rasmus Kattai

    ()

  • John Lewis

    ()

Abstract

This paper analyses the reliability of real time estimates of cyclically adjust budget balances (CABs). We find that real time CABs are not better at forecasting the ex post figures than simpler benchmarks. Further, we find that real time CABs have low power in detecting fiscal slippages, and in correctly identifying fiscal improvements. Around half of the real time errors in CABs can be attributed to revisions in the cyclical component of the budget balance, and around one half to revisions in the deficit to GDP ratio across vintages. That means it will be difficult to use them to reliably monitor the health of public finances. Lastly, we find that CABs are systematically less reliable under conditions of poor or deteriorating public finances, which means they are at their most unreliable precisely when they are needed most

Suggested Citation

  • Andrew Hughes Hallett & Rasmus Kattai & John Lewis, 2009. "Can we rely on real time figures for cyclically adjusted budget balances?," Bank of Estonia Working Papers 2009-2, Bank of Estonia, revised 20 Oct 2009.
  • Handle: RePEc:eea:boewps:wp2009-02
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    File URL: http://www.eestipank.ee/sites/eestipank.ee/files/publication/en/WorkingPapers/2009/_wp_209.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    real time data; cylically adjusted budget deficits; measurement error;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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