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
Anna Rogantini Picco: ECB, Sveriges Riksbank, and CEPR

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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 signaling 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 signaling 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 JEL Codes: E62; E32; D83 (search for similar items in EconPapers)
Date: 2024
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https://warwick.ac.uk/fac/soc/economics/research/w ... rp_1512_-_melosi.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:wrk:warwec:1512

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