HOW RELIABLE ARE CYCLICALLY ADJUSTED BUDGET BALANCES IN REAL TIME? |
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| Authors: | ANDREW HUGHES HALLETT RASMUS KATTAI JOHN LEWIS |
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| Institution: | 1. Hughes Hallett: George Mason University, School of Public Policy, 4400 University Drive, Fairfax, VA 22030. Phone +1 703 993 9123, Fax +1 703 993 2284, E‐mail ahughesh@gmu.edu;2. Kattai: Research Department, Bank of Estonia, Estonia Pst 15, 15095 Tallinn, Estonia. E‐mail rasmus.kattai@eestipank.ee |
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| Abstract: | 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) |
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