A0250
Title: The signaling effects of fiscal announcements
Authors: Anna Rogantini Picco - Sveriges Riksbank (Sweden) [presenting]
Leonardo Melosi - Federal Reserve Bank of Chicago (United States)
Francesco Zanetti - University of Oxford (United Kingdom)
Hiroshi Morita - Tokyo Institute of Technology (Japan)
Abstract: Fiscal announcements may transfer information about the government's view of the macroeconomic outlook to the private sector, diminishing the effectiveness of fiscal policy as a stabilization tool. A novel dataset is constructed that combines daily data on Japanese stock prices with narrative records from press releases about a set of extraordinary fiscal packages introduced by the Japanese government from 2011 to 2020. Local projections are used to show that these fiscal stimuli were often interpreted as negative news by the stock market whereas exogenous fiscal interventions that do not convey any information about the business cycle (e.g., the successful bids to host the Olympics on September 8, 2013) fostered bullish reactions. In addition, these negative effects on stock prices arose more commonly when fiscal stimuli were announced against a backdrop of heightened macroeconomic uncertainty. Both findings are shown to be consistent with the theory of signalling effects.
