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The Signaling Effects of Fiscal Announcements

Author

Listed:
  • Francesco Zanetti
  • Leonardo Melosi
  • Hiroshi Morita
  • Anna Rogantini Picco

Abstract

Announcing a large fiscal stimulus may signal the governments 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.

Suggested Citation

  • Francesco Zanetti & Leonardo Melosi & Hiroshi Morita & Anna Rogantini Picco, 2024. "The Signaling Effects of Fiscal Announcements," CIGS Working Paper Series 24-017E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:24-017e
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    References listed on IDEAS

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