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Quantitative Effects of Fiscal Foresight

  • Eric M. Leeper
  • Alexander W. Richter
  • Todd B. Walker

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. (JEL E12, E62, H20, H30, H62)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.2.115
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Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 2 (May)
Pages: 115-44

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:2:p:115-44
Note: DOI: 10.1257/pol.4.2.115
Contact details of provider: Web page: https://www.aeaweb.org/aej-policy
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  1. Eric Leeper & Todd Walker & Susan Yang SHu-Chun, 2009. "Fiscal Foresight And Information Flows," Caepr Working Papers 2009-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  2. Leeper, Eric M. & Walker, Todd B. & Yang, Shu-Chun S., 2010. "Government investment and fiscal stimulus," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 1000-1012, November.
  3. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2011. "Foresight and Information Flows," NBER Working Papers 16951, National Bureau of Economic Research, Inc.
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