Real-Time Measures of the Output Gap and Fiscal Policy Stance

This paper studies real-time measures of the output gap and fiscal policy stance estimates for EU countries. We construct a comprehensive real-time data set on fiscal forecasts and study whether there are systematic differences between the European Commission and IMF estimates of the output gap and structural budget balance. We argue that differences in the EC and the IMF estimates should provide a lower bound for the potential heterogeneity that is likely to emerge when national governments begin to release their estimates of the output gap and structural budget balance as required by the new fiscal rules in the EU. We find evidence that while the two institutions are likely to agree on cyclical conditions and fiscal policy measures in EU countries after the fact, there are statistically significant differences in their real-time estimates of the output gap and structural budget balance.