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Expectation shocks and fiscal rules

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  • Dennis Wesselbaum

    (University of Otago)

Abstract

This paper discuss expectation (or news) shocks to government expenditures: consumption or investment spending in an otherwise standard RBC model of the U.S. economy. In addition, we study the differences emerging from modelling fiscal policy with and without fiscal rules. We find that news about future fiscal policy generate dramatically different effects, if fiscal policy follows a rule. Our findings have several implications for the design and the implementation of fiscal policy as well as the estimation of fiscal shocks.

Suggested Citation

  • Dennis Wesselbaum, 2019. "Expectation shocks and fiscal rules," International Economics and Economic Policy, Springer, vol. 16(2), pages 357-377, April.
    • Handle: RePEc:kap:iecepo:v:16:y:2019:i:2:d:10.1007_s10368-017-0389-z
    DOI: 10.1007/s10368-017-0389-z
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    References listed on IDEAS

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