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Fiscal Foresight and Information Flows

Author : Eric M. Leeper

Publisher : International Monetary Fund

Page : 65 pages

File Size : 43,96 MB

Release : 2012-06-01

Category : Business & Economics

ISBN : 1475558244

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Book Description

News - or foresight - about future economic fundamentals can create rational expectations equilibria with non-fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react. Using tax policies as a leading example of foresight, simple theory makes transparent the economic behavior and information structures that generate non-fundamental equilibria. Econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes; biases are quantitatively important when two canonical theoretical models are taken as data generating processes. Both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows. Different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non-uniqueness problem endemic to moving average representations.



Fiscal foresight and the effects of goverment spending

Author : Mario Forni

Publisher :

Page : pages

File Size : 28,89 MB

Release : 2010

Category :

ISBN :

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Book Description

We study the effects of government spending by using a structural, large dimensional, dynamic factor model. We find that the government spending shock is non-fundamental for the variables commonly used in the structural VAR literature, so that its impulse response functions cannot be consistently estimated by means of a VAR. Government spending raises both consumption and investment, with no evidence of crowding out. The impact multiplier is 1.7 and the long run multiplier is 0.6.



Fiscal Foresight, Limited Information and the Effects of Government Spending Shocks

Author : Matteo Fragetta

Publisher :

Page : 0 pages

File Size : 32,87 MB

Release : 2014

Category :

ISBN :

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Book Description

We quantify the impact of government spending shocks in the US. Thereby, we control for fiscal foresight, a specific limited information problem (LIP) by utilizing the narrative approach. Moreover, we surmount the generic LIP inherent in vector autoregressions (VARs) by a factor-augmented VAR (FAVAR) approach. We find that a positive deficit-financed defence shock raises output by more than in a VAR (e.g. 2.61 vs. 2.04 for peak multipliers). Furthermore, our evidence suggests that consumption is crowded in. These results are robust to variants of controlling for fiscal foresight and reveal the crucial role of the LIP in fiscal VARs.





Quantitative Effects of Fiscal Foresight

Author : Eric M. Leeper

Publisher :

Page : 40 pages

File Size : 18,36 MB

Release : 2010

Category : Economics

ISBN :

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Book Description

Changes in fiscal policy typically entail two kinds of lags: the legislative lag-between when legislation is proposed and when it is signed into law-and the implementation lag-from when a new fiscal law is enacted and when it takes effect. These 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 and changes in tax policy-and map the news processes into standard DSGE models. We identify news concerning taxes through the municipal bond market. If asset markets are efficient, the yield spread between tax-exempt municipal bonds and treasuries should be a function of the news concerning changes in tax policy. We identify news concerning government spending through the Survey of Professional Forecasters. We conclude that news concerning fiscal variables is a time-varying process that can have important qualitative and quantitative effects -- National Bureau of Economic Research web site.



Quantitative Effects of Fiscal Foresight

Author : Eric M. Leeper

Publisher :

Page : 29 pages

File Size : 46,97 MB

Release : 2015

Category :

ISBN :

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Book Description

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.