The economic effects of government spending: using expectations data to control for information

Matthew Hall and Aditi Thapar

Macroeconomic Dynamics, 2023, vol. 27, issue 1, 141-170

Abstract: We present a new methodology that uses professional forecasts to estimate the effects of fiscal policy. We use short-term forecasts to better identify exogenous shocks to government spending by controlling for anticipatory information already in the public domain. We use longer-term forecasts to net out expectations from the future path of other variables, which improves accuracy and efficiency by focusing on more precise measures of the impact of shocks. We show that this improves the statistical fit relative to both local projection methods and vector autoregression-based analyses that do not control for the entire future path of expectations.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:27:y:2023:i:1:p:141-170_7

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