Growth Forecast Errors and Fiscal Multipliers

44 Pages Posted: 28 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: January 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.

Keywords: Economic forecasting, Economic growth, Economic models, Fiscal policy, Government expenditures, baseline regression, budget balance, discretionary fiscal stimulus, economic forecasting, fiscal accounts, fiscal adjustment, fiscal balance, fiscal balance in percent, fiscal consolidation, fiscal consolidation on growth, fiscal consolidations, fiscal expansion, fiscal multipliers, fiscal policy, fiscal shock, fiscal stimulus, forecasting, government expenditure, government expenditures, government revenue, government spending, growth forecast, growth forecasts, growth projections, output fluctuations, panel regressions, public expenditures, public finances, regression approach, regression coeffi

JEL Classification: E32, E62, H20, H50, H68

Suggested Citation

Blanchard, Olivier J. and Leigh, Daniel, Growth Forecast Errors and Fiscal Multipliers (January 2013). IMF Working Paper No. 13/1. Available at SSRN: https://ssrn.com/abstract=2226267

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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