Fiscal Targets. A Guide to Forecasters?

36 Pages Posted: 9 Aug 2015

See all articles by Joan Paredes

Joan Paredes

European Central Bank

Gabriel Perez-Quiros

Banco de España

Javier J. Pérez

Banco de España - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: August 7, 2015


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 to unveil 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; learning

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

Suggested Citation

Paredes, Joan and Perez-Quiros, Gabriel and Perez, Javier J., Fiscal Targets. A Guide to Forecasters? (August 7, 2015). ECB Working Paper No. 1834, Available at SSRN: or

Joan Paredes (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014

Javier J. Perez

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid


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