Ülo Ennuste Economics

papers and articles in wordpress

NB: Blanchard, Oliver; Leigh, Daniel. 2013. Growth Forecast Errors and Fiscal Multipliers. IMF Working Paper 13/1*

Large model but small conception:  Blanchard, Oliver; Leigh, Daniel. 2013. Growth Forecast Errors and Fiscal Multipliers. IMF Working Paper 13/1*

 „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.“

Another interpretation may be that lower growth may probably be associated with other regressors than just the one regressor/factor  – fiscal consolidation**.  Probably many other factors and especially external ones like lower exports and higher outflow from the country of capital/investments and labour etc – and this may be especially the case for the smaller open economies and with not advanced socio-economic mechanisms (e.g. regressive tax systems and high economic inequalities and low salaries etc***).

In this sense it has been very reasonable from the authors not to include into this study the very small EU27 peripheral counties**** like Estonia, Latvia, and Lithuania.


*) http://www.imf.org/external/pubs/cat/longres.aspx?sk=40200.0

**) „The equation estimated is therefore:

(1)   Forecast Error of ΔYi,t:t+1 = α + β Forecast of ΔFi,t:t+1|t + ε i,t:t+1,

where ΔYi,t:t+1 denotes cumulative (year-over-year) growth of real GDP (Y) in economy i

that is, (Yi,t+1/Yi,t–1 – 1)—and the associated forecast error is ΔY i,t:t+1 – f{ΔY i,t:t+1 | Ωt }, where

f denotes the forecast conditional on Ωt, the information set available early in year t. ΔF i,t:t+1

denotes the change in the general government structural fiscal balance in percent of potential

GDP, a widely used measure of the discretionary change in fiscal policy for which we have

forecasts.6 Positive values of ΔF i,t:t+1 indicate fiscal consolidation, while negative values

indicate discretionary fiscal stimulus. The associated forecast is “Forecast of ΔFi,t:t+1|t

defined as f { Ft+1,,i Ft–1,i | Ωt }.“

***) Ennuste, Ü. 2012.  “Waiting for the Commission Strengthened Governance Coordination Leviathans: Discourse Memo for the Actors in the Macro-Game “European Semester”- Baltic Journal of European Studies“ Vol 2, No 1, 2012 p 139-164:


****) „As explained above, we focus in our baseline on forecasts made for European economies in early 2010. Growth forecast errors thus measure the difference between actual cumulative real GDP (year-over-year) growth during 2010–11, based on the latest data, minus the forecast prepared for the April 2010 WEO (IMF, 2010c).9 The forecast of fiscal consolidation is the forecast of the change in the structural fiscal balance as a percent of potential GDP during 2010–11, as prepared for the April 2010 WEO. We use all available data for the European Union’s (EU’s) 27 member states, as well as for the remaining three European economies classified as “advanced” in the WEO database: Iceland, Norway, and Switzerland. WEO forecasts of the structural fiscal balance made in April 2010 are unavailable for Estonia, Latvia, Lithuania, and Luxembourg.“


January 8, 2013 - Posted by | Uncategorized

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