Fiscal Foresight and Information Flows

By Todd B. Walker, Eric M. Leeper, Susan S. Yang. Social Science Research Network, 2012

430 citations recorded by the source corpus.

News - or foresight - about future economic fundamentals can create rational expectations equilibria with non-fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react. Using tax policies as a leading example of foresight, simple theory makes transparent the economic behavior and information structures that generate non-fundamental equilibria. Econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes; biases are quantitatively important when two canonical theoretical models are taken as data generating processes. Both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows. Different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non-uniqueness problem endemic to moving average representations.

View Paper: https://www.semanticscholar.org/paper/708e200fe316462dcc3bdaee77fa5acf1b5a79d2

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

Citations in the corpus

The Costs of Economic Nationalism: Evidence from the Brexit Experiment* (2019, unknown): “First, conventional VAR models face di � culties when it comes to recovering anticipation e � ects (Lippi and Reichlin, 1994; Fernández-Villaverde et al. , 2007; Leeper et al. , 2013).”
Government Investment and Fiscal Stimulus (2010, background): “Leeper et al. (2009) consider three alternative specifications: agents can derive utility from government consumption, private capital is also subject to a process of time-to-build, and the economy includes a government production section where the government employs workers and purchases goods to…”
Local Projections vs. VARs: Lessons From Thousands of DGPs (2021, methodology): “This is a type of shrinkage estimation: the unrestricted least-squares estimate is pushed in the direction of a smooth quadratic function of the horizon.”
Macroeconomic Shocks and Their Propagation (2016, background): “Consider the following example, based on Leeper et al. (2013), of a simple growth model with a representative household with log utility over consumption, discount factor β, and a production function , with α < 1.”
Sufficient information in structural VARs (2014, background): “Dynamic rotations as in Lippi and Reichlin (1994), Mertens and Ravn (2010), Forni, Gambetti, Lippi and Sala (2013a, 2013b) can in principle solve the problem.”
Fiscal policy and the Great Recession in the Euro Area (2012, unknown): “5 Furthermore, we adapt the model by allowing for non-separable valuable government consumption similar to Leeper, Walker, and Yang (2009b).”
Escaping the Great Recession (2017, unknown): “Our work is then related to the study of the interaction between scal and monetary policies in determining ination dynamics (Sargent and Wallace 1981; Leeper 1991; Sims 1994; Woodford 1994, 1995, 2001; Schmitt-Grohe and Uribe 2000; Cochrane 1998, 2001; Bassetto 2002; among many others) and to the ”
The Effects of Fiscal Consolidations: Theory and Evidence (2017, background): “As noted by Leeper et al. (2013), fiscal foresight prevents the identification of exogenous shifts in fiscal variables from VAR residuals.”