Does government spending improve inflation forecasting?
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Government spending can improve inflation forecasting by providing more precise estimates of the effects of fiscal policy on the economy. Professional forecasts are shown to be more accurate than standard VAR-based estimates, and using longer horizon forecasts of output, consumption, investment, wages, and inflation allows for better control of anticipated information and increases the precision of the estimates of the effects of changes in government spending on the economy . However, the expected inflation channel, where government spending drives up expected inflation and reduces the real interest rate, leading to an increase in private consumption, may not have been important in the post-WWII US. Evidence from the Federal Reserve's passive policy period suggests that the response of expected inflation to a government spending shock was too small to engender a large output multiplier .
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| The paper does not directly address the question of whether government spending improves inflation forecasting. The word "inflation" is mentioned in the paper, but it is discussed in the context of the real cost channel and its effect on inflation dynamics. The paper primarily focuses on government spending multipliers and the impact of the real cost channel on these multipliers. | |
Open access•Posted Content | The paper does not directly address whether government spending improves inflation forecasting. The paper discusses the impact of government spending on demand pressure and suggests that considering the quantity of resources absorbed by the government may be more informative than the quantity of output it produces. |
5 Citations | The paper does not directly address the question of whether government spending improves inflation forecasting. The word "inflation" is mentioned in the abstract, but it is discussed in the context of the impact of government spending on expected inflation, not on inflation forecasting. |
55 Citations | The paper does not directly address the question of whether government spending improves inflation forecasting. The paper focuses on the "expected inflation channel" of government spending and examines the response of expected inflation to government spending shocks. |
6 Citations | The paper does not directly address the question of whether government spending improves inflation forecasting. |
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How do government expenditures affect the economy?5 answersGovernment expenditures have various effects on the economy. They can contribute to economic growth, employment generation, increase in income, higher standard of living, reduction in income inequalities, and boosting of regional balance. The relationship between government expenditure and economic growth is complex and can vary depending on the country and the specific types of expenditures. In some cases, government expenditure positively affects economic growth, while in other cases, the relationship is weak. The effects of government expenditure on inflation, unemployment, consumption, and investment also vary. Recurrent and capital expenditures have negative effects on inflation but positive effects on investment. Capital expenditure can contribute to reducing unemployment. However, both types of expenditures have negative effects on consumption in the long run, but positive effects in the short run. The effects of government expenditure on consumption, investment, and output can be more precisely estimated by using professional forecasts and controlling for anticipated information. In OECD economies, compensation of government employees and government investment generate significantly positive multipliers, while government use of goods and services does not. Social benefits also have a positive effect on private consumption in both OECD and non-OECD countries. In Malaysia, government expenditures on education, health, defense and security, and social services have a significant relationship with economic growth, with health expenditure being the most influential.