When and How to Adjust Beyond the Business Cycle? A Guide to Structural Fiscal Balances prepared by Fabian Bornhorst, Gabriela Dobrescu, Annalisa Fedelino, Jan Gottschalk, and Taisuke Nakata published by IMF (4/2011).
Structural balances are an extension of cyclically adjusted balances, correcting for a broader range of factors such as asset and commodity prices and output composition effects. Such analysis helps strengthen the understanding of the underlying drivers of fiscal positions that became apparent during the recent global crisis. This technical note seeks to provide operational guidance on when and how to apply various approaches to compute cyclically adjusted and structural fiscal balances. The main lesson is that there is no single way of adjusting fiscal balances; the appropriate adjustment should take into account the purpose of the analysis, data availability, the fiscal regime, and the economic structure, but will ultimately reflect analytical judgment. The note presents an empirical example based on Canada and other examples from country work. It also makes available a package of STATA codes for the regressions and diagnostic tests needed to estimate cyclically adjusted and structural balances, and an Excel template to compute these balances once elasticity estimates are available that can be readily adapted to other country cases.
