The Signaling Effects of Fiscal Announcements

Leonardo Melosi, Hiroshi Morita, Anna Rogantini Picco and Francesco Zanetti
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Hiroshi Morita: Tokyo Institute of Technology

No 2436, Discussion Papers from Centre for Macroeconomics (CFM)

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 signalling 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 signalling effects and find that such effects weaken or, in extreme cases, even completely undermine the stabilizing impact of fiscal policy.

Keywords: Fiscal policy; macroeconomic stabilization; macroeconomic uncertainty; stock prices; Japan; asymmetric information (search for similar items in EconPapers)
JEL-codes: D83 E32 E62 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2024-08
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https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussio ... MDP2024-36-Paper.pdf (application/pdf)

Related works:
Working Paper: The Signaling Effects of Fiscal Announcements (2024)
Working Paper: The Signaling Effects of Fiscal Announcements (2024)
Working Paper: The signaling effects of fiscal announcements (2024)
Working Paper: The Signaling Effects of Fiscal Announcements (2024)
Working Paper: The Signaling Effects of Fiscal Announcements (2024)
Working Paper: The Signaling Effects of Fiscal Announcements (2024)
Working Paper: The Signaling Effects of Fiscal Announcements (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2436

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