This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate...

The impact of fiscal stimulus depends not only on short-term tax and spending policies, but also on expectations about offsetting measures in the future. This paper analyzes the effects of an increase in government spending under a plausible debt-stabilizing policy that links current stimulus to...

Growth and employment in the US have been robust over the past 18 months, and President Trump frequently takes personal credit for these trends. This column explores how the US economy would have evolved without Trump. An analysis shows no difference between the post-election performance of the...

In this study, we investigate how firm expectations about their own developments respond to different types of news. We classify news as either micro or macro, with micro news being information about firm-specific developments and macro news being information about the aggregate economy. Our...

We assess the contribution of "undue optimism" (Pigou) to short-run fluctuations. In our analysis, optimism pertains to total factor productivity which determines economic activity in the long run, but is not contemporaneously observed by market participants. In order to recover optimism shocks...

Expectations matter for economic activity. To the extent that they are fundamentally unwarranted, they represent "undue optimism or pessimism" (Pigou, 1927). In this paper, we identify empirically the effect of undue optimism/pessism ("optimism shocks") on economic activity. In a first step, we...

Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield...