Fiscal forward guidance: A case for selective transparency

Ippei Fujiwara and Yuichiro Waki

Journal of Monetary Economics, 2020, vol. 116, issue C, 236-248

Abstract: Should the fiscal authority use forward guidance to reduce future policy uncertainty perceived by private agents? Using dynamic general equilibrium models, we examine the welfare effects of announcing future fiscal policy shocks and show that selective transparency is desirable — announcing distortionary future policy shocks can be detrimental to ex ante social welfare, whereas announcing non-distortionary shocks generally improves welfare. Sizable welfare gains are found with constructive ambiguity regarding the timing of a tax increase in a realistic fiscal consolidation scenario. However, being secretive about distortionary shocks is time inconsistent, and welfare loss from communication may be unavoidable.

Keywords: Fiscal policy; Private information; Forward guidance; News shock; Bayesian persuasion (search for similar items in EconPapers)
JEL-codes: D82 E30 E62 H20 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Fiscal Forward Guidance:A Case for Selective Transparency (2018)
Working Paper: Fiscal Forward Guidance: A case for selective transparency (2017)
Working Paper: Fiscal Forward Guidance: A Case for Selective Transparency (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:116:y:2020:i:c:p:236-248

DOI: 10.1016/j.jmoneco.2019.10.007

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