The Signaling Effects of Fiscal Announcements

Leonardo Melosi, Hiroshi Morita, Anna Rogantini Picco and Francesco Zanetti
Additional contact information
Leonardo Melosi: University of Warwick, Federal Reserve Bank of Chicago, and CEPR (E-mail: [email protected])
Hiroshi Morita: Tokyo Institute of Technology (E-mail: [email protected])
Anna Rogantini Picco: ECB, Sveriges Riksbank, and CEPR (E-mail: [email protected])
Francesco Zanetti: University of Oxford and CEPR (E-mail: [email protected])

No 24-E-10, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

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 (search for similar items in EconPapers)
JEL-codes: D83 E32 E62 (search for similar items in EconPapers)
Date: 2024-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.imes.boj.or.jp/research/papers/english/24-E-10.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:24-e-10

Access Statistics for this paper

More papers in IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Kinken ().