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Shall we trust governments' fiscal plans?

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  • Joan Paredes

Abstract

Should rational agents take into consideration government policy announcements? A skilled agent could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real time: (i) the ex ante path of policy as published/announced by the government; and (ii) incoming, observed data on the actual degree of implementation of ongoing plans. We formulate and estimate empirical models for a number of EU countries to show that government targets convey useful information about ex post policy developments when policy changes significantly (even if past credibility is low) and when there is limited information about the implementation of plans (e.g. at the beginning of a fiscal year).

Suggested Citation

  • Joan Paredes, 2015. "Shall we trust governments' fiscal plans?," Research Bulletin, European Central Bank, vol. 23, pages 15-18.
    • Handle: RePEc:ecb:ecbrbu:2015:0023:3
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    References listed on IDEAS

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