An analytical characterization of noisy fiscal policy

- We provide an analytical characterization of the effects of noisy news shocks on fiscal policy.
- The responses of investment to noise and news are heavily linked.
- Noise dampens the propagation of anticipated fiscal policy over the business cycle.

This paper provides an analytical characterization of the effects of noisy news shocks on fiscal policy. We consider a small-scale Dynamic Stochastic General Equilibrium (DSGE) model with capital accumulation and endogenous labor supply and show that noise dampens the propagation of anticipated fiscal policy over the business cycle, thus reducing the fiscal multiplier.