Using a large Bayesian VAR, we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases. We document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and...

Can discretionary increases in government spending stimulate the economy? We answer this question by taking into account both the information flow on fiscal measures and the role played by information frictions. Using a novel set of empirical proxies for fiscal news and agents' misperceptions,...