Growth Forecast Errors and Fiscal Multipliers

Author/Editor: Olivier J. Blanchard ; Daniel Leigh
Publication Date: January 03, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 13/1
Subject(s): Economic growth | Fiscal policy | Government expenditures | Economic forecasting | Economic models

Publication Date: January 03, 2013
ISBN/ISSN: 9781475576443/1018-5941 Format: Paper
Stock No: WPIEA2013001 Pages: 43
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