Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154267
Authors: 
Paredes, Joan
Pérez, Javier J.
Pérez Quirós, Gabriel
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1834
Abstract: 
Should rational agents take into consideration government policy announcements? A skilled agent (an econometrician) could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real-time: (i) the ex-ante path of policy as published/announced by the government; (ii) incoming, observed data on the actual degree of implementation of ongoing plans. We formulate and estimate empirical models for a number of EU countries (Germany, France, Italy, and Spain) to show that government (consumption) targets convey useful information about ex-post policy developments when policy changes significantly (even if past credibility is low) and when there is limited information about the implementation of plans (e.g. at the beginning of a fiscal year). In addition, our models are instrumental to unveil the current course of policy in real-time. Our approach complements a well-established branch of the literature that finds politically-motivated biases in policy targets.
Subjects: 
fiscal policy
forecasting
learning
policy credibility
JEL: 
C54
H30
H68
E61
E62
ISBN: 
978-92-899-1647-9
Document Type: 
Working Paper

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