G. Ricco, G. Callegari, J. Cimadomo - Signals from the Government: Policy Disagreement and the Transmission of Fiscal Shocks

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Journal of Monetary Economics, Volume 82, September 2016, Pages 107-118
Bloomberg Quint

Abstract: This paper investigates the influence of fiscal policy communication on the propagation of government spending shocks. We propose a new index to measure the coordination effects of policy communication on private agent expectations. This index relies on the disagreement amongst US professional forecasters about future government spending. The underlying intuition is that a clear fiscal policy communication can coalesce agents' expectations, reducing disagreement. Our results indicate that, in times of low disagreement about future policies, the output response to fiscal spending announcements is large and positive. Conversely, periods of elevated disagreement are characterised by muted responses. The stronger effects of fiscal policy when expectations are coordinated are due to the accelerator effect of planned fiscal spending on private investment.

 

 

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© 2018 by Giovanni Ricco.

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