Quantitative Effects of Fiscal Foresight

American Economic Journal: Economic Policy, Vol. 4, Issue 2, 2012

29 Pages Posted: 30 Jun 2015 Last revised: 1 Jul 2015

Eric M. Leeper

Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER)

Alexander W. Richter

Federal Reserve Bank of Dallas

Todd B. Walker

Indiana University Bloomington - Department of Economics

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Date Written: October 11, 2011

Abstract

Legislative and implementation lags imply that substantial time evolves between when news arrives about fiscal changes and when the changes actually take place -- time when households and firms can adjust their behavior. We identify two types of fiscal news -- government spending using the Survey of Professional Forecasters and taxes using the municipal bond market. The main contribution of the paper is a mapping from reduced-form estimates of news into a DSGE framework. We find that news about fiscal policy is a time-varying process and show that ignoring the time variation can have important consequences in a conventional macroeconomic model.

Keywords: News Shocks, Survey Data, DSGE

JEL Classification: E12, E62, H20, H30, H62

Suggested Citation

Leeper, Eric M. and Richter, Alexander W. and Walker, Todd B., Quantitative Effects of Fiscal Foresight (October 11, 2011). American Economic Journal: Economic Policy, Vol. 4, Issue 2, 2012. Available at SSRN: https://ssrn.com/abstract=2624409

Eric Michael Leeper

Indiana University at Bloomington - Department of Economics ( email )

304 Wylie Hall
Bloomington, IN 47405-6620
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National Bureau of Economic Research (NBER)

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Alexander W. Richter (Contact Author)

Federal Reserve Bank of Dallas ( email )

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Dallas, TX 75265-5906
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HOME PAGE: http://alexrichterecon.com

Todd B. Walker

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

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