02290cas a2200265 a 4500 AALejournalIMF014474 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498305167 1018-5941 BD-DhAAL BD-DhAAL Tereanu, Eugen. Structural Balance Targeting and Output Gap Uncertainty / Eugen Tereanu, Anita Tuladhar, Alejandro Simone. Washington, D.C. : International Monetary Fund, 2014. 1 online resource (31 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Potential output estimation plays a crucial role in conducting fiscal policy based on structural balances. Difficulties in estimating potential output could lead to an erroneous policy stance with a consequent impact on growth. This paper analyzes historical data on revisions of actual and potential growth in the European Union and the implication of these revisions for the measurement of fiscal effort using the cyclically-adjusted primary balance (CAPB). It finds that revisions in output gap estimates were large, at almost 1 1\2 percent of potential GDP on average. Revisions in potential GDP also contributed significantly to revisions in the estimated CAPB, especially during the crisis years. Given these findings and historical correlations, it proposes an indicative rule of thumb for reducing errors in the measurement of fiscal effort by factoring in that about 30 percent of revisions in actual growth capture changes in potential growth. In other words, the standard advice of 'letting automatic stabilizers operate fully' in response to a positive/negative growth shocks likely implies a strengthening/weakening of the structural position. Mode of access: Internet Simone, Alejandro. Tuladhar, Anita. IMF Working Papers; Working Paper ; No. 2014/107 Full text available on IMF http://elibrary.imf.org/view/journals/001/2014/107/001.2014.issue-107-en.xml IMF e-Library