Time-varying government spending foresight

Abstract

Government spending forecast is noisy and displays time-varying uncertainties. Using the Survey of Professional Forecasters, we establish three stylized facts about disagreement regarding future discretionary government spending. A simple noise representation of foresight á la Chahrour and Jurado (2018) featuring stochastic volatility captures these stylized facts. We analyze both qualitatively and quantitatively how the noisy foresight structure impacts the macroeconomy under different monetary-fiscal policy regimes. Time-varying fiscal foresight manifests its effect through non-zero noise shocks by generating state-dependent government spending multipliers.