What drives forecast errors and ex-post-revisions of structural balances in the euro area?

Maidorn, Reiss – Working Paper 2 – November 2017

Using vintages of the EC projections from autumn 2007 to spring 2016, we analyze both ex-post-revisions and forecast errors of the level of and the change in the structural balance in the EA-12. Our main findings are: In general, ex-post revisions in structural balances were mainly driven by output gap revisions, while projection errors are to a significant extent driven by other factors. Not surprisingly, the role of potential output revisions shrinks when looking at the change in the structural balance, as revisions of annual potential growth tend to be smaller than level revisions. Primarily due to other factors than potential growth revisions, the mean absolute projection errors on this indicator are sizeable, and for some countries they are above the official margin of error applied on the adjustment path to the MTO even in the autumn projections for the current year. While a more detailled analysis indicates a significant role of expenditure projections in this context, projection errors based on indicators similar to the “expenditure benchmark" in the SGP are substantially smaller than for the change in the structural balance. These uncertainties may shed some doubt on how much the EU Fiscal Governance should rely on projections of “fiscal efforts".

Publikationsjahr: 2017
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