TY - JOUR
T1 - Fiscal forward guidance
T2 - A case for selective transparency
AU - Fujiwara, Ippei
AU - Waki, Yuichiro
N1 - Funding Information:
This study is conducted as a part of the project “On Monetary and Fiscal Policy under Structural Changes and Societal Aging” undertaken at the Research Institute of Economy, Trade and Industry (RIETI). We are also grateful for financial support from JSPS KAKENHI Grant-in-Aid for Scientific Research (A) Grant Number 15H01939 and 18H03638.
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2020/12
Y1 - 2020/12
N2 - Should the fiscal authority use forward guidance to reduce future policy uncertainty perceived by private agents? Using dynamic general equilibrium models, we examine the welfare 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 distortionary shocks is time inconsistent, and welfare loss from communication may be unavoidable.
AB - Should the fiscal authority use forward guidance to reduce future policy uncertainty perceived by private agents? Using dynamic general equilibrium models, we examine the welfare 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 distortionary shocks is time inconsistent, and welfare loss from communication may be unavoidable.
KW - Bayesian persuasion
KW - Fiscal policy
KW - Forward guidance
KW - News shock
KW - Private information
UR - http://www.scopus.com/inward/record.url?scp=85076228652&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85076228652&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2019.10.007
DO - 10.1016/j.jmoneco.2019.10.007
M3 - Article
AN - SCOPUS:85076228652
SN - 0304-3932
VL - 116
SP - 236
EP - 248
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
ER -