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HOW RELIABLE ARE CYCLICALLY ADJUSTED BUDGET BALANCES IN REAL TIME?
Author(s) -
HUGHES HALLETT ANDREW,
KATTAI RASMUS,
LEWIS JOHN
Publication year - 2012
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2011.00250.x
Subject(s) - reliability (semiconductor) , economics , econometrics , power (physics) , state (computer science) , computer science , physics , algorithm , quantum mechanics
Cyclically adjusted budget balances (CABs) are often used to provide an indication of the structural state of public finances. This paper analyzes the reliability of these figures in real time. In a test of the ability to forecast the “final data,” we find that real‐time CABs are outperformed by a simpler methodology. Furthermore, we find that real‐time CABs have low power in detecting fiscal slippages and in correctly identifying fiscal improvements. Finally, we find that CABs are systematically less reliable under conditions of poor or deteriorating public finances, which means they are at their most unreliable precisely when they are needed most. ( JEL H62, H87)