News on State-Dependent Fiscal Multipliers: The role of Confidence

Juan Figueres

No 202, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper investigates the role of consumer confidence in determining the real effects that anticipated (news) government spending shocks have on output in recessions and in expansions as for the US economy. To account for fiscal foresight, I employ a measure of anticipated fiscal shocks defined as the sums of expectations’ revisions over future fiscal spending. This variable is shown to carry relevant information about movements on government spending. Results indicate that fiscal multipliers during recession are both statistically larger than in expansions and greater than one. Importantly, consumer confidence is shown to play a decisive role in determining the real effects of an anticipated spending shock within a non-linear framework. In particular, the response of confidence is key in explaining the statistically larger fiscal multipliers during recessions. Moreover, the role of confidence is found to be relevant for the transmission of anticipated shocks only. These results qualify confidence as a key ingredient for understanding the transmission of fiscal news shocks (as opposed to unanticipated fiscal shocks).

Keywords: Consumer Confidence; Fiscal forecast; Fiscal spending multiplier; Non-linear models; Smooth Transition Vector-AutoRegressions. (search for similar items in EconPapers)
JEL-codes: C32 E32 E6 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-09
New Economics Papers: this item is included in nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0202

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