Expectation shocks and fiscal rules

Dennis Wesselbaum

International Economics and Economic Policy, 2019, vol. 16, issue 2, No 4, 357-377

Abstract: 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.

Keywords: Expectation shocks; Fiscal rules; Government expenditures (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10368-017-0389-z

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