higher than implicitly assumed by forecasters." I hope someone else who has read the paper can help me understand one part of it that is confusing me. This is their primary claim:
Under rational expectations, and assuming that forecasters used the correct model for forecasting, the coefficient on the fiscal consolidation forecast should be zero. If, on the other hand, forecasters underestimated fiscal multipliers, there should be a negative relation between fiscal consolidation forecasts and subsequent growth forecast errors (pg. 1).
I wanted to model it to convince myself. Here is my model: