Three years ago, Christoph Zwick and I wrote a paper about the sustainability of Austria’s public debt. Under our preferred model, we forecasted the debt-to-GDP ratio, which at the time stood at slightly over 80 percent, to recede towards 60 percent within the next decade. We concluded that the long-run probability distribution of Austrian public debt given current data indicated no cause for alarm. How good was our projection?
Well, the new Austrian minister of finance just held his budget speech, in which he announced a zero budget deficit in the coming years. Assuming the government follows through on this plans, this would indeed bring down the debt-to-GDP ratio to 62 percent, exactly as our main projection predicted.
Here is the finance ministry’s proposed budget path:
And here our main projection from the paper (note that the initial debt level is slightly lower due to different definitions of public debt; the dark and light blue areas indicate the 75 and 95 percent probability bands around the median, which is in black):
Ladies and Gentlemen, this is what a perfection prediction looks like.