Fiscal Forward Guidance: A Case for Selective Transparency

Ippei Fujiwara and Yuichiro Waki

No 318, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Should the fiscal authority use forward guidance to reduce future policy uncertainty perceived by private agents? Using dynamic stochastic general equilibrium models, we examine the welfare effects of announcing future fiscal policy shocks. Analytical as well as numerical experiments show that selective transparency is desirable?announcing future fiscal policy shocks that are distortionary can be detrimental to ex ante social welfare, whereas announcing nondistortionary shocks generally improves welfare. Sizable welfare gains are found with constructive ambiguity regarding the timing of a consumption tax increase in the fiscal consolidation scenario in Japan recommended by Hansen and Imrohoroglu (2016). However, being secretive about distortionary tax shocks is time inconsistent, and welfare loss from communication may be unavoidable without commitment.

JEL-codes: D82 E30 E62 H20 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2017-06-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Fiscal forward guidance: A case for selective transparency (2020)
Working Paper: Fiscal Forward Guidance:A Case for Selective Transparency (2018)
Working Paper: Fiscal Forward Guidance: A case for selective transparency (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:318

DOI: 10.24149/gwp318

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