Cyclical adjustment in fiscal rules: Some evidence on real-time bias for EU-15 countries
Most EU member states will adopt fiscal rules that refer to cyclically-adjusted borrowing limits. Under the standard cyclical adjustment procedure, trend increases in public debt based on cyclical components are prevented if the real-time output gaps used to calculate cyclical components balance over time. We analyse real-time output gaps for EU-15 countries over the 1996-2011 period as estimated by the EU, the IMF and the OECD. Compared to each institution's final estimate, we find that real-time output gaps in our sample period are negatively biased. This bias is observed (i) irrespective of the source of the data, (ii) in all real-time vintages, (iii) basically across the entire cross-section of countries. The magnitude of the bias is considerable: on average, real-time cyclical components as a percentage of GDP are biased downwards by about 0.5 percentage point per year. Our results suggest that fiscal rules should incorporate ex-post checks of the unbiasedness of the cyclical components used within the rule. Potential biases would then decrease or increase future borrowing limits.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Postfach 10 06 02, 60006 Frankfurt|
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Web page: http://www.bundesbank.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dean Croushore, 2008.
"Frontiers of real-time data analysis,"
08-4, Federal Reserve Bank of Philadelphia.
- Eric Mayer & Nikolai Stähler, 2013.
"The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule,"
Springer, vol. 40(1), pages 39-74, February.
- Mayer, Eric & Stähler, Nikolai, 2009. "The debt brake: business cycle and welfare consequences of Germany's new fiscal policy rule," Discussion Paper Series 1: Economic Studies 2009,24, Deutsche Bundesbank, Research Centre.
- Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2008.
"Fiscal Forecasting: Lessons from the Literature and Challenges,"
Institute for Fiscal Studies, vol. 29(3), pages 347-386, 09.
- Leal, Teresa & Pérez, Javier J. & Tujula, Mika & Vidal, Jean-Pierre, 2007. "Fiscal forecasting: lessons from the literature and challenges," Working Paper Series 0843, European Central Bank.
- Athanasios Orphanides & Simon van Norden, 2002.
"The Unreliability of Output-Gap Estimates in Real Time,"
The Review of Economics and Statistics,
MIT Press, vol. 84(4), pages 569-583, November.
- Athanasios Orphanides & Simon Van_Norden, 2000. "The Reliability of Output Gap Estimates in Real Time," Econometric Society World Congress 2000 Contributed Papers 0768, Econometric Society.
- Athanasios Orphanides & Simon van Norden, 1999. "The Reliability of Output Gap Estimates in Real Time," Macroeconomics 9907006, EconWPA.
- Athanasios Orphanides & Simon van Norden, 1999. "The reliability of output gap estimates in real time," Finance and Economics Discussion Series 1999-38, Board of Governors of the Federal Reserve System (U.S.).
- Athanasios Orphanides & Simon van Norden, 2001. "The Unreliability of Output Gap Estimates in Real Time," CIRANO Working Papers 2001s-57, CIRANO.
- Newey, Whitney K & West, Kenneth D, 1987.
"A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix,"
Econometric Society, vol. 55(3), pages 703-08, May.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Cayen, Jean-Philippe & van Norden, Simon, 2004.
"The reliability of Canadian output gap estimates,"
Discussion Paper Series 1: Economic Studies
2004,29, Deutsche Bundesbank, Research Centre.
- Cayen, Jean-Philippe & van Norden, Simon, 2005. "The reliability of Canadian output-gap estimates," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 373-393, December.
- Bouthevillain, Carine & Cour-Thimann, Philippine & van de Dool, Gerrit & Hernández de Cos, Pablo & Langenus, Geert & Mohr, Matthias & Momigliano, Sandro & Tujula, Mika, 2001.
"Cyclically adjusted budget balances: an alternative approach,"
Working Paper Series
0077, European Central Bank.
- Bouthevillain, C. & Van Den Dool, G. & Langenus, G. & Mohr, M. & Momigliano, S. & Tujula, M. & De Cos, P.H. & Cour-Thimann, Philippine, 2001. "Cyclically Adjusted Budget Balances: an Alternative Approach," Papers 77, Quebec a Montreal - Recherche en gestion.
- Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008.
"Business Cycles in the Euro Area,"
NBER Working Papers
14529, National Bureau of Economic Research, Inc.
- Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2009. "Business Cycles in the Euro Area," CEPR Discussion Papers 7124, C.E.P.R. Discussion Papers.
- Domenico Giannone & Michèle Lenza & Lucrezia Reichlin, 2008. "Business Cycles in the euro Area," Working Papers ECARES 2008_040, ULB -- Universite Libre de Bruxelles.
- Fabrizio Balassone & Daniele Franco, 2000. "Public investment, the Stability Pact and the ‘golden rule’," Fiscal Studies, Institute for Fiscal Studies, vol. 21(2), pages 207-229, June.
- Marcellino, Massimiliano & Musso, Alberto, 2011.
"The reliability of real-time estimates of the euro area output gap,"
Elsevier, vol. 28(4), pages 1842-1856, July.
- Massimiliano Marcellino & Alberto Musso, 2010. "the Reliability of Real Time Estimates of the EURO Area Output Gap," Economics Working Papers ECO2010/06, European University Institute.
- Marcellino, Massimiliano & Musso, Alberto, 2010. "The Reliability of Real Time Estimates of the Euro Area Output Gap," CEPR Discussion Papers 7716, C.E.P.R. Discussion Papers.
- Holden, K & Peel, D A, 1990. "On Testing for Unbiasedness and Efficiency of Forecasts," The Manchester School of Economic & Social Studies, University of Manchester, vol. 58(2), pages 120-27, June.
- Gerberding, Christina & Seitz, Franz & Worms, Andreas, 2005.
"How the Bundesbank really conducted monetary policy,"
The North American Journal of Economics and Finance,
Elsevier, vol. 16(3), pages 277-292, December.
- Christina Gerberding & Franz Seitz & Andreas Worms, 2005. "How the Bundesbank really conducted monetary policy," Computing in Economics and Finance 2005 60, Society for Computational Economics.
- Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
- Elena Gennari & Raffaela Giordano & Sandro Momigliano, 2005.
"Dealing with Unexpected Shocks to the Budget,"
FinanzArchiv: Public Finance Analysis,
Mohr Siebeck, Tübingen, vol. 61(2), pages 201-, July.
- Francesca D'Auria & CÃ©cile Denis & Karel Havik & Kieran Mc Morrow & Christophe Planas & Rafal Raciborski & Werner Roger & Alessandro Rossi, 2010. "The production function methodology for calculating potential growth rates and output gaps," European Economy - Economic Papers 420, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Edward Nelson & Kalin Nikolov, 2001.
"UK inflation in the 1970s and 1980s: the role of output gap mismeasurement,"
Bank of England working papers
148, Bank of England.
- Nelson, Edward & Nikolov, Kalin, 2003. "UK inflation in the 1970s and 1980s: the role of output gap mismeasurement," Journal of Economics and Business, Elsevier, vol. 55(4), pages 353-370.
- Nelson, Edward & Nikolov, Kalin, 2001. "UK Inflation in the 1970s and 1980s: The Role of Output Gap Mismeasurement," CEPR Discussion Papers 2999, C.E.P.R. Discussion Papers.
- Roberto Golinelli & Sandro Momigliano, 2009. "The Cyclical Reaction of Fiscal Policies in the Euro Area: The Role of Modelling Choices and Data Vintages," Fiscal Studies, Institute for Fiscal Studies, vol. 30(1), pages 39-72, 03.
- David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
When requesting a correction, please mention this item's handle: RePEc:zbw:bubdps:152012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.