Uncertainty and Fiscal Cliffs

Troy Davig and Andrew Foerster

No 2018-12, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Large pending fiscal policy changes, such as in the United States in 2012 or in Japan with consumption taxes, often generate considerable uncertainty. ?Fiscal cliff? episodes have several features: an announced possible future change, a skewed set of possible out-comes, the possibility that implementation may not actually occur, and a known resolution date. This paper develops a model capturing these features and studies their impact. Fiscal cliff uncertainty shocks have immediate impact, with a magnitude that depends on the probability of implementation, which generates economic volatility. The possibility of fiscal cliffs lowers economic activity even in periods of relative certainty.

JEL-codes: E20 F60 F62 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2018-09-05
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Related works:
Journal Article: Uncertainty and Fiscal Cliffs (2019)
Working Paper: Uncertainty and Fiscal Cliffs (2015)
Working Paper: Uncertainty and fiscal cliffs (2014)
Working Paper: Uncertainty and Fiscal Cliffs (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2018-12

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DOI: 10.24148/wp2018-12

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