Growth Forecast Errors and Fiscal Multipliers

Olivier J. Blanchard, Daniel Leigh

NBER Working Paper No. 18779
Issued in February 2013
NBER Program(s):   EFG   PE

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, 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.

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An online appendix is available for this publication.

Acknowledgments

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