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A News-based Policy Index for Italy: Expectations and Fiscal Policy

Daniela Fantozzi () and Alessio Muscarnera ()
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Daniela Fantozzi: ISTAT Italian National Institute of Statistics, http://www.ceistorvergata.it
Alessio Muscarnera: Università di Roma "Tor Vergata"

No 509, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In this paper we investigate the effect of a "news-based" policy shock on consumption and investments. To this aim, we construct a new measure of policy announcements, the Policy News Index (PNI), analyzing textual data from the most important Italian business newspaper (Il Sole 24 Ore). To disentangle news and noise from fiscal policy communication, we provide measures of newspaper coverage of policy announcements purged from uncertainty. Using a BVAR, we estimate the response of households and firms to a news on government spending. Results indicate that the "news" or "foresight" shock has delayed effects on government spending, consumption and investments. Agents receive mixed signals from newspapers about changes in government spending and they do not react before changes are fully in place due to a "lack of trust". Additionally, we show in a counterfactual exercise that the "confidence channel" plays a crucial role in in the transmission of the shock. Hence, our results provides evidence that outcomes are expectations-driven.

Keywords: News-based index; Textual data; Text mining; Fiscal foresight; Agents’ expectations; BVAR. (search for similar items in EconPapers)
JEL-codes: C32 C81 D80 E62 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2021-03-11, Revised 2021-03-11
New Economics Papers: this item is included in nep-eec and nep-mac
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