Growth Forecast Errors and Fiscal Multipliers

41 Pages Posted: 9 Feb 2013

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Daniel Leigh

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2013

Abstract

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.

Suggested Citation

Blanchard, Olivier J. and Leigh, Daniel, Growth Forecast Errors and Fiscal Multipliers (February 2013). NBER Working Paper No. w18779. Available at SSRN: https://ssrn.com/abstract=2214248

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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