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Making Fiscal Adjustments Using Event Probability Forecasts in OECD Countries

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

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Authors

KEVIN LEE kevin.lee@nottingham.ac.uk
Professor of Economics

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.

Citation

Lee, K., Ong, K., & Shields, K. K. (2020). Making Fiscal Adjustments Using Event Probability Forecasts in OECD Countries. Economic Record, 96(314), 294-313. https://doi.org/10.1111/1475-4932.12540

Journal Article Type Article
Acceptance Date May 17, 2020
Online Publication Date May 20, 2020
Publication Date 2020-09
Deposit Date May 22, 2020
Publicly Available Date Mar 28, 2024
Journal Economic Record
Print ISSN 0013-0249
Electronic ISSN 1475-4932
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 96
Issue 314
Pages 294-313
DOI https://doi.org/10.1111/1475-4932.12540
Keywords Economics and Econometrics
Public URL https://nottingham-repository.worktribe.com/output/4487750
Publisher URL https://onlinelibrary.wiley.com/doi/full/10.1111/1475-4932.12540

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