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Government Forecasts of Budget Balances Under Asymmetric Loss: International Evidence

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  • Rülke, Jan-Christoph
  • Pierdzioch, Christian

Abstract

We study the loss function of 15 European governments as implied by their budget balance forecasts. Results suggest that the shape of the loss function varies across countries. The loss function becomes more asymmetric as the forecast horizon increases and in advance of parliamentary election. Compared to that, government ideology does not affect the shape of the loss function. Under a fiscal rule, government agencies experience a higher loss when overpredicting the fiscal balance compared to an underprediction of the same size. We also document that under an asymmetric loss function government forecasts look more rational compared to a symmetric loss function. This may explain why government agencies' forecasts have been found to be too optimistic (Frankel 2012).

Suggested Citation

  • Rülke, Jan-Christoph & Pierdzioch, Christian, 2014. "Government Forecasts of Budget Balances Under Asymmetric Loss: International Evidence," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100317, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100317
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    References listed on IDEAS

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    Cited by:

    1. Giovannelli, Alessandro & Pericoli, Filippo Maria, 2020. "Are GDP forecasts optimal? Evidence on European countries," International Journal of Forecasting, Elsevier, vol. 36(3), pages 963-973.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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