Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60238
Year of Publication: 
2012
Series/Report no.: 
Bundesbank Discussion Paper No. 15/2012
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
Most EU member states will adopt fiscal rules that refer to cyclically-adjusted borrowing limits. Under the standard cyclical adjustment procedure, trend increases in public debt based on cyclical components are prevented if the real-time output gaps used to calculate cyclical components balance over time. We analyse real-time output gaps for EU-15 countries over the 1996-2011 period as estimated by the EU, the IMF and the OECD. Compared to each institution's final estimate, we find that real-time output gaps in our sample period are negatively biased. This bias is observed (i) irrespective of the source of the data, (ii) in all real-time vintages, (iii) basically across the entire cross-section of countries. The magnitude of the bias is considerable: on average, real-time cyclical components as a percentage of GDP are biased downwards by about 0.5 percentage point per year. Our results suggest that fiscal rules should incorporate ex-post checks of the unbiasedness of the cyclical components used within the rule. Potential biases would then decrease or increase future borrowing limits.
Subjects: 
public finance
fiscal rules
cyclical adjustment
JEL: 
H61
H68
E32
ISBN: 
978-3-86558-822-7
Document Type: 
Working Paper

Files in This Item:
File
Size
288.28 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.