Forni, Lorenzo and Momigliano, Sandro (2004): Cyclical sensitivity of fiscal policies based on real-time data. Published in: Applied Economics Quarterly , Vol. 50, No. 3-2004 (1. December 2004): pp. 299-326.
Download (778kB) | Preview
This paper examines the information-related problems associated with the analysis of fiscal policies, an issue recently studied in connection with monetary policies but largely ignored in the literature on budgetary action. We estimate a fiscal policy rule for the EU and OECD countries using real-time data on cyclical conditions; the results indicate that over the last decade fiscal policies reacted strongly and counter-cyclically to adverse macroeconomic conditions. Using ex post data instead, the reaction to adverse cyclical conditions is weaker and not statistically significant. The results indicate that reliance on the information actually available to policy-makers in real-time is important for the assessment of past policies, as ex post revised data may provide a misleading basis for such analysis. The results also suggest that part of the problems the Stability and Growth Pact encountered may have come from a misjudgment of cyclical conditions in some European countries in recent years.
|Item Type:||MPRA Paper|
|Institution:||Bank of Italy|
|Original Title:||Cyclical sensitivity of fiscal policies based on real-time data|
|Keywords:||Real-time information; OECD countries; stabilization policies; fiscal policy rules|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
|Depositing User:||Lorenzo Forni|
|Date Deposited:||01. Aug 2007|
|Last Modified:||18. Feb 2013 19:04|
Auerbach, A.J. (2002), “Is There a Role for Discretionary Fiscal Policy?”, paper presented at the Conference sponsored by the Federal Reserve Bank of Kansas City “Rethinking Stabilization Policy”, Jackson Hole, August.
————— (2003), “Fiscal Policy, Past and Present”, paper presented for the Brookings panel on Economic Activity, March.
Balassone, F. and M. Francese (2004), “Cyclical Asymmetry in Fiscal Policy, Debt Accumulation and the Treaty of Maastricht”, Temi di discussione, Bank of Italy.
Buti, M. (2002), “Public Finances in the Early Years of EMU: Adjusting to the New Policy Regime”, paper presented at a workshop organized by the Fundación por la Modernización de España, Madrid, October.
Buti, M., D. Franco and H. Ongena (1998), “Fiscal Discipline and Flexibility in EMU: the Implementation of the Stability and Growth Pact”, Oxford Review of Economic Policy, Vol. 14, No. 3.
Buti, M. and P. van den Noord (2003), “Fiscal Policy in EMU: Rules, Discretion and Political Incentives”, European Commission, Directorate-General for Economic and Financial Affairs, Economic Paper, No. 206.
Brunila, A. and C. Martinez-Mongay (2002), “Fiscal Policy in the Early Years of EMU”, in M. Buti and A. Sapir (eds.), EMU and Economic Policy in Europe, Edward Elgar, UK and USA.
Chouraqui, J.C., R. Hagemann and N. Sartor (1990), “Indicators of Fiscal Policy: A Reexamination”, OECD Department of Economics and Statistics, Working Paper, No. 78.
Cohen, D. and G. Follette (2003), “Forecasting Exogenous Fiscal Variables in the United States”, paper presented at the Public Finance Workshop in Seville, Spain, October.
European Commission (2001), Public Finance in EMU – 2001, European Economy, Reports and Studies, No. 3.
European Commission (2002), Public Finance in EMU – 2002, European Economy, Reports and Studies, No. 3.
Fatás, A. and I. Mihov (2001), “Fiscal Policy and Business Cycles: An Empirical Investigation”, paper presented at the XIII Symposium of Moneda y Crédito.
Franzese, R.J. (2000) “Electoral and Partisan Manipulation of Public Debt in Developed Democracies”, in R. Strauch and J. von Hagen (eds.), Institutions, Politics and Fiscal Policy, Kluwer Academic Publishers.
Galí, J. and R. Perotti (2003), “Fiscal Policy and Monetary Integration in Europe”, Economic Policy, No. 37, October.
Giorno, C., P. Richardson, D. Roseveare and P. van den Noord (1995), “Estimating Potential Output, Output Gaps and Structural Budget Balances”, OECD, Economic Department, Working Paper, No. 152.
IMF (2004), World Economic Outlook, No. 74, September.
von Hagen, J., A.H. Hallett and R. Strauch (2002), “Quality and Success of Budgetary Consolidation”, in M. Buti, C. Martinez-Mongay and J. von Hagen (eds.), The Behavior of Fiscal Authorities – Stabilization, Growth and Institutions, Palgrave.
Larch, M. and M. Salto (2003), “Fiscal Rules, Inertia and Discretionary Fiscal Policy”, European Economy, Economic Papers, October, No. 194.
Mélitz, J. (2000), “Some Cross-country Evidence About Fiscal Policy Behaviour and Consequences for EMU”, European Economy, No. 2.
OECD (2003), Economic Outlook, No.74, December.
Orphanides, A. (1998), “Monetary Policy Evaluation with Noisy Information”, Federal Reserve Board Finance and Economics Discussion Series, No. 1998, 50.
————— (2001), “Monetary Policy Rules Based on Real-time Data”, American Economic Review, September.
Orphanides, A. and S. van Norden (2002), “The Unreliability of Output-gap Estimates in Real-time”, The Review of Economics and Statistics, No. 4, November.
Rünstler, G. (2002), “The Information Content of Real-time Output Gap Estimates: An Application to the Euro Area”, European Central Bank, Working Paper Series, No. 182, September.
Taylor, J.B. (2000), “Reassessing Discretionary Fiscal Policy”, Journal of Economic Perspectives, vol. 14, No. 3.
van den Noord, P. (2000), “The Size and Role of Automatic Stabilizers in the 1990s and Beyond”, OECD, Working Paper, No. 230, January.
Wijkander, H. and W. Roeger (2002), “Fiscal Policy in EMU: The Stabilization Aspect”, in M. Buti, C. Martinez-Mongay and J. von Hagen (eds.), The Behavior of Fiscal Authorities – Stabilization, Growth and Institutions, Palgrave.