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Consumers' updating, policy shocks and public debt: An empirical assessment of state dependencies

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  • Martin Geiger

    (Liechtenstein-Institut)

  • Marios Zachariadis

    (University of Cyprus)

Abstract

We assess the impact of fiscal and monetary policy shocks on US survey-based consumer expectations within states of low and high public debt. Following an unexpected increase in government spending, consumption intentions rise in the low-debt state and fall in the highdebt state. Overall, such a shock has adverse e ects on expectations in high-debt states. Similarly, contractionary monetary policy shocks induce pessimistic expectations in the highdebt state but not in the low-debt state. The estimated responses suggest that higher public debt fuels considerations regarding its repayment, giving rise to state dependencies in the updating of expectations in response to both fiscal and monetary policy shocks.

Suggested Citation

  • Martin Geiger & Marios Zachariadis, 2021. "Consumers' updating, policy shocks and public debt: An empirical assessment of state dependencies," Arbeitspapiere 69, Liechtenstein-Institut.
    • Handle: RePEc:lii:wpaper:69
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    Cited by:

    1. Eminidou, Snezana & Geiger, Martin & Zachariadis, Marios, 2023. "Public debt and state-dependent effects of fiscal policy in the euro area," Journal of International Money and Finance, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    expectations; rational inattention; Ricardian; fiscal theory of the price level;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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