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Making Fiscal Adjustments Using Event Probability Forecasts in OECD Countries

Lee, Kevin; Ong, Kian; Shields, Kalvinder K.

Authors

Kevin Lee

Kian Ong

Kalvinder K. Shields



Abstract

This paper describes an approach to making fiscal policy decisions based on probabilistic statements on the likely occurrence of events as specified in a rules‐based framework for making fiscal adjustments. The event probability forecasts are obtained from a simple time series econometric model of the key variables influencing debt dynamics (interest rates, output and debt itself). The approach is applied to data for ten developed countries for 1956–2016 and the analysis demonstrates the importance of accommodating international linkages in forecasting, noting that failure to do so would have led to excessive fiscal cutbacks and austerity in recent years.

Journal Article Type Article
Publication Date May 20, 2020
Journal Economic Record
Print ISSN 0013-0249
Electronic ISSN 1475-4932
Publisher Wiley
Peer Reviewed Peer Reviewed
APA6 Citation Lee, K., Ong, K., & Shields, K. K. (2020). Making Fiscal Adjustments Using Event Probability Forecasts in OECD Countries. Economic Record, https://doi.org/10.1111/1475-4932.12540
DOI https://doi.org/10.1111/1475-4932.12540
Keywords Economics and Econometrics
Publisher URL https://onlinelibrary.wiley.com/doi/full/10.1111/1475-4932.12540

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This file is under embargo until May 21, 2022 due to copyright restrictions.




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