Inside the IMF “mea culpa”: A panel analysis on growth forecast errors and Keynesian multipliers in Europe
DOI:
https://doi.org/10.13133/2037-3643_73.294_2Keywords:
GDP forecast errors, Keynesian multipliers, panel analysisAbstract
The tests carried out by Blanchard and Leigh (2013; IMF, 2012) and Fátas and Summers (2018) are extended here into a panel framework in order to assess the empirical basis of the so-called IMF “mea culpa” regarding the underestimation of Keynesian multipliers during the euro area crisis. The objections put forward by the European Central Bank, the European Commission and other authors against the “underestimation” thesis are tested and refuted. The results support the “mea culpa” and highlight that the underestimation of multipliers can concern both the short and the long term.
JEL codes:E23, E27, E62
References
Alesina A. e Ardagna S. (2010), “Large Changes in Fiscal Policy: Taxes versus Spending”, in Brown J.R. (ed.), Tax Policy and the Economy. Volume 24 (pp. 35-68), Chicago: University of Chicago Press and National Bureau of Economic Research.
Alesina A., Giavazzi G. and Favero C. (2019), Austerity. When it Works and When it Does Not, Princeton: Princeton University Press.
Almunia M., Bénétrix A., Eichengreen B., O’Rourke K.H. and Rua G. (2010), “From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons”, Economic Policy, 25 (62), pp. 219-265.
Auerbach A. and Gorodnichenko Y. (2012), “Measuring the Output Responses to Fiscal Policy”, American Economic Journal: Economic Policy, 4 (2), pp. 1-27.
Auerbach A. and Gorodnichenko Y. (2013), “Output Spillovers from Fiscal Policy, American Economic Review, 103 (3): 141-46.
Blanchard O.J. (2018), “Should We Reject the Natural Rate Hypothesis?”, Journal of Economic Perspectives, 31 (1), pp. 97-120.
Blanchard O.J. and Brancaccio E. (2019), “Crisis and Revolution in Economic Theory and Policy: A Debate”, Review of Political Economy, 31 (2), pp. 271-287.
Blanchard O.J. and Leigh D. (2013), “Growth Forecast Errors and Fiscal Multipliers”, American Economic Review: Papers and Proceedings, 103 (3), pp. 117-120.
Blanchard O.J. and Leigh D. (2014), “Learning about Fiscal Multipliers from Growth Forecast Errors,” IMF Economic Review, 62 (2), pp. 179-212.
Blanchard O.J. and Summers L. (2019), “Ripensare le politiche macroeconomiche: evoluzione o rivoluzione?”, Moneta e Credito, 72 (287), pp. 171-195.
Brancaccio E. and Califano A. (2018), Anti-Blanchard Macroeconomics. A Comparative Approach, Cheltenham (UK) and Northampton (MA): Edward Elgar.
Brancaccio E. and De Cristofaro F. (2019a), Growth forecast errors during the euro crisis: what was the cause?, economiaepolitica.it, 11 (17), pp. 1-4.
Brancaccio E. and De Cristofaro F. (eds.) (2019b), “Crisi e rivoluzioni della teoria e della politica economica: un simposio”, Moneta e Credito, 72 (287), special issue.
Brancaccio E. and Saraceno F. (2017), “Evolutions and Contradictions in Mainstream Macroeconomics: The Case of Olivier Blanchard”, Review of Political Economy, 29 (3), pp. 345-359.
Califano A. and De Cristofaro F. (2018), “Appendix 2: Contractionary Fiscal Policy and Fiscal Multipliers”, in Brancaccio E. and Califano A. (eds.), Anti Blanchard Macroeconomics. A Comparative Approach, Cheltenham (UK) and Northampton (MA): Edward Elgar.
Carnot N. and de Castro F. (2015), “The Discretionary Fiscal Effort: An Assessment of Fiscal Policy and Its Output Effect”, European Economy – Economic Papers, no. 543, Brussels: European Commission, Directorate-General for Economic and Financial Affairs, available at https://ec.europa.eu/economy_finance/publications /economic_paper/2015/pdf/ecp543_en.pdf.
Christiano L., Eichenbaum M. and Rebelo S. (2011), “When Is the Government Spending Multiplier Large?”, Journal of Political Economy, 119, pp. 78-121.
Coibion O. and Gorodnichenko Y. (2012), “What Can Survey Forecasts Tell Us about Information Rigidities?”, Journal of Political Economy, 120 (1), pp. 116-159.
Cottarelli C. and Jaramillo L. (2012), “Walking Hand in Hand: Fiscal Policy and Growth in Advanced Economies”, IMF Working Paper, no. 12/137, Washington (DC): International Monetary Fund.
ECB – European Central Bank (2012), Economic Bulletin, December, Frankfurt Am Main: European Central Bank.
European Commission (2012), “European Economic Forecast. Autumn”, European Economy, n. 7/2012, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Commission, (2013), “Report on Public finances in EMU”, European Economy, n. 4/2013, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
Fátas A. and Summers L.H. (2018), “The Permanent Effects of Fiscal Consolidations”, Journal of International Economics, 112, pp. 238-250.
Gechert S., Horn G.A. and Paetz C. (2019), “Long-term Effects of Fiscal Stimulus and Austerity in Europe”, Oxford Bulletin of Economics and Statistics, 81 (3), pp. 647-666.
Giles, C. (2012), Robustness of IMF data scrutinised. Financial Times, October 13-14.
Górnicka L., Kamps C., Koster G. and Leiner-Killinger N. (2020), “Learning about Fiscal Multipliers during the European Sovereign Debt Crisis: Evidence from a Quasi-Natural Experiment”, Economic Policy, May, DOI: 10.1093/epolic/eiaa008.
House C.L., Proebsting C. and Tesar L.L. (2019), “Austerity in the Aftermath of the Great Recession”, Journal of Monetary Economics, available online at DOI: 10.1016/j.jmoneco.2019.05.004.
Hsiao C. (2007), “Panel data analysis—Advantages and challenges”, Test, 16, pp. 1-22.
IMF – International Monetary Fund (2012), “Are We Underestimating Short Term Fiscal Multipliers?”, World Economic Outlook, box 1.1, p. 41, October; extended in Blanchard O.J. and Leigh D. (2013), “Growth Forecast Errors and Fiscal Multipliers”, IMF Working Paper, no. 13/1, Washington (DC): International Monetary Fund.
Krugman, P. (2013), “How the Case for Austerity Has Crumbled”, New Yourk Review of Books, June 6.
Laeven L. and Valencia F. (2018), “Systemic Banking Crises Revised”, IMF Working Paper, n. 18/206, Washington (DC): International Monetary Fund.
Lane P.R. and Milesi-Ferretti G.M. (2018), “The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis”, IMF Economic Review, 66 (1), pp. 189-222.
Mountford A. and Uhlig H. (2009), “What are the Effects of Fiscal Policy Shocks?”, Journal of Applied Econometrics, 24 (6), pp. 960-992
Palumbo A. (2008), “I metodi di stima del Pil potenziale tra fondamenti di teoria economica e contenuto empirico”, Departmental Working Papers of Economics, no. 92, Rome: University Roma Tre.
Palumbo A. (2015), “Studying Growth in the Modern Classical Approach: Theoretical and Empirical Implications for the Analysis of Potential Output”, Review of Political Economy, 27 (3), pp. 282-307.
Pasinetti (2005), “How Much of John Maynard Keynes Can We Find in Franco Modigliani?”, BNL Quarterly Review, 58 (233-234), pp. 21-39.
Romer C. and Romer D. (2010), “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks”, American Economic Review, 100 (3), pp. 763-801.
Roncaglia A. (2011), “Macroeconomics in Crisis and Macroeconomics in Recovery”, PSL Quarterly Review, vol. 64 n. 257, pp. 167-185.
Timmermann A. and Granger C.W.J. (2004), “Efficient Market Hypothesis and Forecasting”, International Journal of Forecasting, 20(1), pp. 15–27.
Downloads
Published
How to Cite
Issue
Section
License
