Journal of Economic Policy Reform

Jun 5, 2020

Articles in journals

Jalles, J.

to appear

This paper assesses European Commission’s fiscal forecasts for a sample of 10 Central and Eastern European countries between 2005 and 2015. The analysis focus on forecasts of the budget balance, revenues, expenditures and debt and pays special attention to dynamics around business cycle turning points. Results suggest that the distribution of projection errors appears to be biased towards optimism of fiscal aggregates and accuracy increases as the forecast horizon shortens. We also find evidence of “forecast smoothing”. In addition, we find that, on average, the extent of optimism seems to increase during recessions (and to a lesser extent during recoveries). Moreover, errors in forecasting fiscal variables can be explained by forecasts errors of real GDP growth and inflation.

C53, E27, E37, E62, D8

European commission forecasts, Central and Eastern Europe, turning points, rational forecasts, efficient forecasts