European commission’s fiscal forecasts in CEE countries: A thorough assessment

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Abstract

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.

Original languageEnglish
Pages (from-to)161-183
JournalJournal of Economic Policy Reform
Volume23
Issue number2
DOIs
Publication statusPublished - 2020

Keywords

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

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