Fiscal Targets. A Guide to Forecasters?

39 Pages Posted: 26 Mar 2015

See all articles by Joan Paredes

Joan Paredes

European Central Bank

Javier J. Pérez

Banco de España - Research Department

Gabriel Perez-Quiros

Banco de España

Multiple version iconThere are 3 versions of this paper

Date Written: March 25, 2015

Abstract

Should rational agents take into consideration government policy announcements? A skilled agent (an econometrician) could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real-time: (i) the ex-ante path of policy as published/announced by the government; (ii) incoming, observed data on the actual degree of implementation of ongoing plans. We formulate and estimate empirical models for a number of EU countries (Germany, France, Italy and Spain) to show that government (consumption) targets convey useful information about ex-post policy developments when policy changes significantly (even if past credibility is low) and when there is limited information about the implementation of plans (e.g. at the beginning of a fiscal year). In addition, our models are instrumental in unveiling the current course of policy in real time. Our approach complements a well-established branch of the literature that finds politically motivated biases in policy targets.

Keywords: policy credibility, fiscal policy, forecasting

JEL Classification: C54, H30, H68, E61, E62

Suggested Citation

Paredes, Joan and Perez, Javier J. and Perez-Quiros, Gabriel, Fiscal Targets. A Guide to Forecasters? (March 25, 2015). Banco de Espana Working Paper No. 1508. Available at SSRN: https://ssrn.com/abstract=2584877 or http://dx.doi.org/10.2139/ssrn.2584877

Joan Paredes (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Javier J. Perez

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

HOME PAGE: http://www.bde.es/investigador/staff/95.htm

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
38
Abstract Views
473
PlumX Metrics