Indicators of the Cyclically Adjusted Budget Balance: The Bank of Finland's Experience

32 Pages Posted: 16 Oct 2007

See all articles by Anne Brunila

Anne Brunila

Ministry of Finance, Finland

Juhana Hukkinen

Bank of Finland - Financial Markets

Mika Tujula

European Central Bank (ECB)

Date Written: January 28, 1999

Abstract

Cyclically adjusted government budget balances have become increasingly popular as a means of analysing the fiscal situation and changes in policy that result from the intentional actions of the government. As the actual budget balances are affected both by cyclical factors ('automatic stabilisers') and structural ('discretionary') measures, they may not, in general, be very useful when seeking to assess the orientation of underlying fiscal policy and possible structural imbalances in the budget balance. The problem however is that there is no generally accepted method of calculating cyclically adjusted (structural) budget balances. The results tend to be fairly noisy and sensitive to the method of calculation. The purpose of this article is to highlight these issues by reviewing three estimation methods used by the Bank of Finland - GDP smoothing based on the Hodrick-Prescott trend estimation method, the production function approach and Blanchard's method - and the corresponding estimates of the cyclically adjusted budget balances for Finland.

Keywords: fiscal policy, cyclically adjusted budget balance

Suggested Citation

Brunila, Anne and Hukkinen, Juhana and Tujula, Mika, Indicators of the Cyclically Adjusted Budget Balance: The Bank of Finland's Experience (January 28, 1999). Bank of Finland Research Discussion Paper No. 1/1999. Available at SSRN: https://ssrn.com/abstract=1021267 or http://dx.doi.org/10.2139/ssrn.1021267

Anne Brunila

Ministry of Finance, Finland ( email )

P.O BOX 28
FIN-00023
Finland
+358 9 160 33191 (Phone)

Juhana Hukkinen (Contact Author)

Bank of Finland - Financial Markets ( email )

P.O Box 160
FIN-00101 Helsinki
Finland

Mika Tujula

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
117
Abstract Views
1,128
rank
237,678
PlumX Metrics