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Growth Forecast Errors and Fiscal Multipliers

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  • Olivier J Blanchard
  • Daniel Leigh

Abstract

This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

Suggested Citation

  • Olivier J Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," IMF Working Papers 2013/001, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2013/001
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    More about this item

    Keywords

    Fiscal consolidation; Fiscal multipliers; Expenditure; Fiscal policy; Fiscal stance; WP; forecast error; fiscal multiplier; least squares; liquidity trap; potential GDP;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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