May 19, 2004 Gábor P. Kiss - Gábor Vadas: Mind the Gap - Watch the Ways of Cyclical Adjustment of the Budget
May 19, 2004. MNB Visitor Centre 3 PM (in Hungarian Language)
Gábor P. Kiss - Gábor Vadas: Mind the Gap - Watch the Ways of Cyclical Adjustment of the Budget
Abstract
Cyclically adjusted budget deficit (CAB) is widely cited and used concept in the evaluation of fiscal stance. The key idea behind it is to separate the independent conjunctural effect on budget deficit from the intentional measures of fiscal policy. The computation of CAB is based on the identification of potential level of economic variables. Both European Commission and European Central Bank propose methods for measuring CAB, however, they are not fully capable of satisfying all requirements. In this paper we present an alternative method, which is able to incorporate the advantages of both approaches. Combining output gap from production function and constrained multivariate HP filter induces theory based disaggregated approach. Results show that aggregated (EC) and disaggregated (ECB and our alternative method) approaches provide different estimations for the benefit of the latter.
Contact: Eszter Szilágyi