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Signals from the government: policy disagreement and the transmission of fiscal shocks

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  • Cimadomo, Jacopo
  • Callegari, Giovanni
  • Ricco, Giovanni

Abstract

We investigate the effects of fiscal policy communication on the propagation of government spending shocks. To this aim, we propose a new index measuring the coordination effects of policy communication on private agents' expectations. This index is based on the disagreement amongst US professional forecasters about future government spending. The underlying intuition is that a clear fiscal policy communication can coalesce expectations, reducing disagreement. Results indicate that, in times of low disagreement, the output response to fiscal spending innovations is positive and large, mainly due to private investment response. Conversely, periods of elevated disagreement are characterised by muted output response. JEL Classification: E60, D80

Suggested Citation

  • Cimadomo, Jacopo & Callegari, Giovanni & Ricco, Giovanni, 2016. "Signals from the government: policy disagreement and the transmission of fiscal shocks," Working Paper Series 1964, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20161964
    Note: 352854
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    More about this item

    Keywords

    disagreement; fiscal transmission mechanism; government spending shock;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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