An empirical investigation of US fiscal expenditures and macroeconomic outcomes

► State-local expenditures contain stable information to explain US inflation. ► These also explain a larger share of the forecast error variance (FEV) of US inflation than the federal funds rate (FFR). ► Non-defense federal expenditures help predict real output variations. ► From the 1980s, these explain more of the FEV of US real output than the FFR.