The Unassuming Economist

From a paper by Gabriel Caldas Montes, Helder Ferreira de Mendonça, and Matheus Rosa Ribeiro:

“Fiscal transparency is essential for the expectations formation process, as governmental fiscal opacity often leads to forecast errors due to insufficient information. This study examines the relationship between fiscal unpredictability, particularly related to the primary budget, and the lack of consensus in expectations for external sector variables in Brazil. Specifically, based on several regression models considering different expectations horizons, we investigate whether fiscal opacity generates a lack of consensus in expectations for the trade balance, foreign direct investment and exchange rate. Additionally, we propose a composite indicator for the lack of consensus in external sector expectations derived from principal component analysis of related variables. The findings indicate that fiscal opacity increases the lack of consensus in expectations for the external sector. In brief, our results highlight the need for greater fiscal transparency to reduce uncertainty and improve consensus in economic expectations, particularly in expectations for external sector variables.”