Journal of Monetary Economics 2020 DOI: 10.1016/j.jmoneco.2019.10.007 View full text
Ippei Fujiwara, Yuichiro Waki

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 reg…

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