Fiscal Forward Guidance:A Case for Selective Transparency

Ippei Fujiwara and Yuichiro Waki

No 2017-8, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: 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 future policy shocks that are distortionary 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.

Keywords: news shock; fiscal policy; private information; communication; forward guidance (search for similar items in EconPapers)
JEL-codes: D82 E30 E62 H20 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2018-03
New Economics Papers: this item is included in nep-dge and nep-mac
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Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29082/wp2017-8.pdf

Related works:
Journal Article: Fiscal forward guidance: A case for selective transparency (2020)
Working Paper: Fiscal Forward Guidance: A case for selective transparency (2017)
Working Paper: Fiscal Forward Guidance: A Case for Selective Transparency (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2017-8

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