Forecastting Macroeconomic Trends

• Activity Number: 412
• Type: Topic Contributed
• Date/Time: Tuesday, August 6, 2013 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Gabriel Perez Quiros*+ and Javier Perez Garcia and Joan Paredes
• Companies: Bank Of Spain and Bank of Spain and European Central Bank
• Keywords: Fisca Policy ; Fiscal Targets ; Time Series ; Forecasting ; Kalman Filter

Abstract

Are ex-ante government targets useful to anchor economic agents' expectations about the future course of fiscal policies? The answer to this question is particularly relevant at the current juncture in which a number of OECD economies are subject to drastic fiscal policy changes. In this paper, we adopt a real-time perspective to address this issue. We estimate quarterly mixed-frequencies, time series models for government consumption using data for a number of euro area countries. The models incorporate: (i) short-term government spending data; (ii) discretionary forward-looking elements, i.e. policy choices as reflected in annual budgetary plans. In this framework, economic agents can learn from observed data the actual pace of implementation of fiscal plans.We show that ex-ante annual fiscal plans contribute to a very limited extent to the accuracy of model forecasts in the very short-run. Instead, current and past values of a number of leading fiscal indicators anticipate the current and future course of public consumption. Thus it is possible to identify variables that convey advanced information about current policy shocks.