U.S. Fiscal Policy: Ex Ante and Ex Post

• Activity Number: 20
• Type: Topic Contributed
• Date/Time: Sunday, July 31, 2011 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Simon van Norden*+ and Dean Croushore
• Companies: HEC Montréal and University of Richmond
• Keywords: deficits ; fiscal policy ; forecasting ; Greenbook

Abstract

This paper introduces a new data set of forecasts "real-time" data on US fiscal variables. The data were regularly prepared for the FOMC of the Board of Governors of the Federal Reserve System to aid in their deliberations on monetary policy. This provides consistent data series on deficits, revenues, expenditures, unemployment rates, output growth, inflation, output gaps and cyclically adjusted deficits updated approximately twice per quarter from 1970 to 2004.

We quantify the measurement and forecast error for both real and cyclically-adjusted deficits at various horizons, and examine particularly important episodes and the factors contributing to those errors. We also decompose the measurement and forecast errors into their various component series. We then examine the cyclical behaviour of both intended and actual fiscal policy by examining the reaction of projected deficits to perceived output or unemployment gaps as well as the reaction of actual deficits to ex post output or unemployment gaps. We conclude by discussing the implications for US fiscal surveillance.