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A News-based Policy Index for Italy: Expectations and Fiscal Policy

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Abstract

In this paper we investigate the effect of a "news-based" policy shock on consumption and investments. To this aim, we construct a new measure of policy announcements, the Policy News Index (PNI), analyzing textual data from the most important Italian business newspaper (Il Sole 24 Ore). To disentangle news and noise from fiscal policy communication, we provide measures of newspaper coverage of policy announcements purged from uncertainty. Using a BVAR, we estimate the response of households and firms to a news on government spending. Results indicate that the "news" or "foresight" shock has delayed effects on government spending, consumption and investments. Agents receive mixed signals from newspapers about changes in government spending and they do not react before changes are fully in place due to a "lack of trust". Additionally, we show in a counterfactual exercise that the "confidence channel" plays a crucial role in in the transmission of the shock. Hence, our results provides evidence that outcomes are expectations-driven.

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  • Daniela Fantozzi & Alessio Muscarnera, 2021. "A News-based Policy Index for Italy: Expectations and Fiscal Policy," CEIS Research Paper 509, Tor Vergata University, CEIS, revised 11 Mar 2021.
    • Handle: RePEc:rtv:ceisrp:509
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    More about this item

    Keywords

    News-based index; Textual data; Text mining; Fiscal foresight; Agents’ expectations; BVAR.;
    All these keywords.

    JEL classification:

    • 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
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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