Fiscal forward guidance: A case for selective transparency

Date

2019

Authors

Fujiwara, Ippei
Waki, Yuichiro

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

Should the fiscal authority use forward guidance to reduce future policy uncertainty per- ceived by private agents? Using dynamic general equilibrium models, we examine the wel- fare effects of announcing future fiscal policy shocks and show that selective transparency is desirable — announcing distortionary future policy shocks can be detrimental to ex ante social welfare, whereas announcing non-distortionary shocks generally improves welfare. Sizable welfare gains are found with constructive ambiguity regarding the timing of a tax increase in a realistic fiscal consolidation scenario. However, being secretive about distor- tionary shocks is time inconsistent, and welfare loss from communication may be unavoid- able.

Description

Keywords

Fiscal polic, Private information, Forward guidance, News shock, Bayesian persuasion

Citation

Source

Journal of Monetary Economics

Type

Journal article

Book Title

Entity type

Access Statement

License Rights

DOI

10.1016/j.jmoneco.2019.10.007

Restricted until

2099-12-31