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Time-varying government spending foresight

Author

Listed:
  • Guo, Junjie
  • Han, Zhao

Abstract

Government spending forecast is noisy and displays time-varying uncertainties. Using the Survey of Professional Forecasters, we establish three stylized facts about disagreement regarding future discretionary government spending. A simple noise representation of foresight á laChahrour and Jurado (2018) featuring stochastic volatility captures these stylized facts. We analyze both qualitatively and quantitatively how the noisy foresight structure impacts the macroeconomy under different monetary-fiscal policy regimes. Time-varying fiscal foresight manifests its effect through non-zero noise shocks by generating state-dependent government spending multipliers.

Suggested Citation

  • Guo, Junjie & Han, Zhao, 2025. "Time-varying government spending foresight," Journal of Economic Dynamics and Control, Elsevier, vol. 173(C).
    • Handle: RePEc:eee:dyncon:v:173:y:2025:i:c:s0165188925000338
    DOI: 10.1016/j.jedc.2025.105067
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    More about this item

    Keywords

    Fiscal foresight; Disagreement; Incomplete information; Belief-driven fluctuations; Government spending multipliers;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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