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Fiscal foresight and the effects of government spending: It’s all in the monetary-fiscal mix

Author

Listed:
  • Guido Ascari

    (University of Oxford
    University of Pavia)

  • Peder Beck-Friis

    (PIMCO)

  • Anna Florio

    (Politecnico di Milano)

  • Alessandro Gobbi

    (University of Milan)

Abstract

Announcements of future government spending have different effects on activity depending on the monetary-fiscal policy mix: They are contractionary in the monetary regime but expansionary in the fiscal regime. This result contrasts with the expansionary nature of government spending at implementation in both regimes. Anticipation effects can therefore help empirically distinguish between the two regimes. Data support this theoretical result, reconciling conflicting results in the empirical literature that disappear once conditioning on the policy regime. These results suggest that it could be (un)wise to anticipate future fiscal policies, depending on the regime in place.

Suggested Citation

  • Guido Ascari & Peder Beck-Friis & Anna Florio & Alessandro Gobbi, 2021. "Fiscal foresight and the effects of government spending: It’s all in the monetary-fiscal mix," Discussion Papers 2112, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2112
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy and fiscal policy interactions; Government spending; Fiscal foresight; Non-fundamentalness;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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