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Government spending news and surprise shocks: It’s the timing and persistence

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  • Kang, Jihye
  • Kim, Soyoung

Abstract

We identify government spending news and surprise shocks based on the Survey of Professional Forecasters (SPF) data. After clarifying the nature of the two news measures used in Ramey (2011b), we show that a measure of the news shock for the recent sample periods is still needed. Moreover, we find that news and surprise shocks may differ not only in timing but also in the level of persistence of government spending responses. Given these findings, we construct a present discounted value measure that properly captures government spending news shock of high persistence. The effects of the news shock strikingly differ from those of the surprise shock. A news shock has a significant expansionary effect on GDP, hours worked, real wage, consumption, and investment, whereas a surprise shock has a contractionary effect. These results are in contrast to previous findings (Ramey, 2011b) and inconsistent with the neoclassical view emphasizing the negative wealth effect.

Suggested Citation

  • Kang, Jihye & Kim, Soyoung, 2022. "Government spending news and surprise shocks: It’s the timing and persistence," Journal of Macroeconomics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jmacro:v:73:y:2022:i:c:s016407042200043x
    DOI: 10.1016/j.jmacro.2022.103446
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    More about this item

    Keywords

    Fiscal foresight; Government spending shocks; News and surprise shocks; Survey of professional forecasters;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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