American Economic Review: Vol. 103 No. 3 (May 2013)


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Growth Forecast Errors and Fiscal Multipliers

Article Citation

Blanchard, Olivier J., and Daniel Leigh. 2013. "Growth Forecast Errors and Fiscal Multipliers." American Economic Review, 103(3): 117-20.

DOI: 10.1257/aer.103.3.117


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. The relation is 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 in part reflect learning by forecasters and in part smaller multipliers than in the early years of the crisis.

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Blanchard, Olivier J. (IMF)
Leigh, Daniel (IMF)

JEL Classifications

C53: Forecasting Models; Simulation Methods
E23: Macroeconomics: Production
E27: Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
E32: Business Fluctuations; Cycles
E62: Fiscal Policy

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