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Growth Forecast Errors and Fiscal Multipliers
Author: Mr. Olivier J Blanchard and Mr. Daniel Leigh
Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 001
Language:
English
Publication Date:
03 Jan 2013
DOI:
https://doi.org/10.5089/9781475576443.001
ISBN:
9781475576443
ISSN:
1018-5941
Pages:
43
Keywords:
WP; forecast error; fiscal multiplier; least squares; liquidity trap; potential GDP; Fiscal policy; forecasting; taxation; government expenditure; output fluctuations; estimation result; reports IMF staff assumption; IMF staff note; WEO database; estimation strategy; a number of economy; estimation code; Fiscal consolidation; Fiscal multipliers; Fiscal stance; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund