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Quantitative Effects of Fiscal Foresight

Quantitative Effects of Fiscal Foresight Abstract Legislative and implementation lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place—time when households and firms can adjust their behavior. We identify two types of fiscal news—government spending using the Survey of Professional Forecasters and taxes using the municipal bond market. The main contribution of the paper is a mapping from reduced-form estimates of news into a DSGE framework. We find that news about fiscal policy is a time-varying process and show that ignoring the time variation can have important consequences in a conventional macroeconomic model. (JEL E12 , E62 , H20 , H30 , H62 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

Quantitative Effects of Fiscal Foresight

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Publisher
American Economic Association
Copyright
Copyright © 2012 by the American Economic Association
Subject
Articles
ISSN
1945-7731
eISSN
1945-774x
DOI
10.1257/pol.4.2.115
Publisher site
See Article on Publisher Site

Abstract

Abstract Legislative and implementation lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place—time when households and firms can adjust their behavior. We identify two types of fiscal news—government spending using the Survey of Professional Forecasters and taxes using the municipal bond market. The main contribution of the paper is a mapping from reduced-form estimates of news into a DSGE framework. We find that news about fiscal policy is a time-varying process and show that ignoring the time variation can have important consequences in a conventional macroeconomic model. (JEL E12 , E62 , H20 , H30 , H62 )

Journal

American Economic Journal: Economic Policy – American Economic Association

Published: May 1, 2012

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