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Early warning or just wise after the event? The problem of using cyclically adjusted budget deficits for fiscal surveillance

2007; RELX Group (Netherlands); Linguagem: Inglês

1556-5068

Andrew Hughes Hallett, Rasmus Kattai, John Lewis,

Global Financial Crisis and Policies

The effectiveness of cyclically adjusted balances (CABs) as an indicator of the health of public finances depends on the accuracy with which cyclically adjusted figures can be calculated in real time. This paper measures the accuracy of such figures using a specially constructed real time dataset containing published values of deficits, output gaps and cyclically adjusted deficits from successive issues of OECD economic outlook. We find that data revisions are so great that real-time CABs have low power in detecting fiscal slippages as defined by the ex post data.