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Forecasting exogenous fiscal variables in the United States

  • Darrel Cohen
  • Glenn Follette

This paper provides an introduction to the practice of forecasting "exogenous" components of federal government taxes and spending-policy actions, for short--in the United States. First, we estimate simple models of defense expenditures that are useful for constructing current-quarter forecasts based on incoming daily and monthly spending data. Also, we discuss forecasting policy changes in the context of extending recent empirical work of Alan Auerbach (2002, 2003) on fiscal reaction functions. Forecasts of exogenous fiscal actions are an important input into forecasts of the budget deficit, and we compare the forecasts of the budget deficit prepared by the Congressional Budget Office (CBO), the President's Office of Management and Budget (OMB), and the staff o the Federal Reserve Board (FRB). To our knowledge, analysis of the FRB forecasts has not been done before.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2003-59.

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Date of creation: 2003
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Handle: RePEc:fip:fedgfe:2003-59
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  1. Craig Burnside & Martin Eichenbaum & Jonas D.M. Fisher, 1999. "Assessing the effects of fiscal shocks," Working Paper Series WP-99-18, Federal Reserve Bank of Chicago.
  2. Alan Auerbach, 2002. "Is There a Role for Discretionary Fiscal Policy?," NBER Working Papers 9306, National Bureau of Economic Research, Inc.
  3. Alan J. Auerbach, 2003. "Fiscal Policy, Past and Present," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 75-138.
  4. Hall, Robert E., 1980. "Labor supply and aggregate fluctuations," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 7-33, January.
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