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The signaling effects of fiscal announcements

Author

Listed:
  • Melosi, Leonardo
  • Morita, Hiroshi
  • Rogantini Picco, Anna
  • Zanetti, Francesco

Abstract

Announcing a large fiscal stimulus may signal the government's pessimism about the severity of a recession to the private sector, impairing the stabilizing effects of the policy. Using a theoretical model, we show that these signaling effects occur when the stimulus exceeds expectations and are more noticeable during periods of high economic uncertainty. Analysis of a new dataset of daily stock prices and fiscal news in Japan supports these predictions. We introduce a method to identify fiscal news with different degrees of signaling effects and find that such effects weaken or, in extreme cases, even completely undermine the stabilizing impact of fiscal policy.

Suggested Citation

  • Melosi, Leonardo & Morita, Hiroshi & Rogantini Picco, Anna & Zanetti, Francesco, 2024. "The signaling effects of fiscal announcements," CEPR Discussion Papers 19380, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19380
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    Cited by:

    1. is not listed on IDEAS
    2. Fiorella De Fiore & Marco Jacopo Lombardi & Albert Pierres Tejada, 2024. "Fiscal stimulus plans and households' expectations," BIS Working Papers 1238, Bank for International Settlements.
    3. José Elías Gallegos & Esteban García-Miralles & Iván Kataryniuk & Susana Párraga Rodríguez, 2025. "Fiscal Announcements and Households’ Beliefs: Evidence from the Euro Area," Working Papers 2543, Banco de España.

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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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