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Growth Forecast Errors and Fiscal Multipliers

  • Olivier J. Blanchard
  • Daniel Leigh

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.

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File URL: http://www.nber.org/papers/w18779.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18779.

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Date of creation: Feb 2013
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Publication status: published as Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-20, May.
Handle: RePEc:nbr:nberwo:18779
Note: EFG PE
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  1. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
  2. Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," NBER Working Papers 15524, National Bureau of Economic Research, Inc.
  3. Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
  4. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Output Spillovers from Fiscal Policy," NBER Working Papers 18578, National Bureau of Economic Research, Inc.
  5. Anja Baum & Marcos Poplawski-Ribeiro & Anke Weber, 2012. "Fiscal Multipliers and the State of the Economy," IMF Working Papers 12/286, International Monetary Fund.
  6. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
  7. Giovanni Callegari & Giovanni Melina & Nicoletta Batini, 2012. "Successful Austerity in the United States, Europe and Japan," IMF Working Papers 12/190, International Monetary Fund.
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