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Working Paper, No. 2022-38, August 2022 Crossref
The Signaling Effects of Fiscal Announcements

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. We construct a novel dataset 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 2011-2020. We use local projections 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 signaling effects.


Working papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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