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IMF Working Paper - Jan. 2013

IMF Working Paper - Jan. 2013

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Growth Forecast Errors and Fiscal Multipliers -
Olivier Blanchard and Daniel Leigh
Growth Forecast Errors and Fiscal Multipliers -
Olivier Blanchard and Daniel Leigh

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Published by: Αντίκρυ Ιστολόγιο on Jan 23, 2013
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04/16/2015

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Growth Forecast Errors andFiscal Multipliers
Olivier Blanchard and Daniel Leigh
WP/13/1
 
 
© 2013 International Monetary Fund WP/13/
1
 
IMF Working Paper
Research Department
Growth Forecast Errors and Fiscal MultipliersPrepared by Olivier Blanchard and Daniel Leigh
Authorized for distribution by Olivier BlanchardJanuary 2013
Abstract
 
This Working Paper should not be reported as representing the views of the IMF.
 
The views expressed in this Working Paper are those of the author(s) and do not necessarily representthose of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
 This paper investigates the relation between growth forecast errors and planned fiscalconsolidation during the crisis. We find that, in advanced economies, stronger planned fiscalconsolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A naturalinterpretation is that fiscal multipliers were substantially higher than implicitly assumed byforecasters. The weaker relation in more recent years may reflect in part learning byforecasters and in part smaller multipliers than in the early years of the crisis.JEL Classification Numbers: E32, E62, H20, H5, H68Keywords: Fiscal policy, forecasting, taxation, government expenditure, output fluctuationsAuthor’s E-Mail Address: oblanchard@imf.org; dleigh@imf.org
 
2Contents PageI. Introduction ............................................................................................................................3
 
II. Forecast Errors and Fiscal Consolidation Forecasts .............................................................6
 
A. Specification and Data ..............................................................................................6
 
B. Results .......................................................................................................................8
 
III. Robustness ...........................................................................................................................8
 
A. Choice of Economies and Role of Outliers ...............................................................8
 
B. Controlling for Other Variables ..............................................................................11
 
Actual vs. Planned Fiscal Consolidation .........................................................13
 
C. Different Forecast Vintages ....................................................................................14
 
IV. Extensions ..........................................................................................................................16
 
A. Government Spending and Revenue .......................................................................16
 
B. Components of Aggregate Spending and Unemployment ......................................17
 
C. Alternative Forecasts ...............................................................................................18
 
V. Conclusions .........................................................................................................................19
 
Appendix ..................................................................................................................................21
 
References ................................................................................................................................24
 

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