Abhiprerna Smit

Abstract: We quantify fiscal inflation through the lens of incomplete information between funded and unfunded fiscal shocks. Information friction naturally breaks the Ricardian equivalence for deficits to be inflationary. We identify the unfunded shock through a pair of interconnected short-term debt and inflation targets that vary over time. Qualitatively, incomplete information alters the effects of both monetary and fiscal shocks on inflation. Quantitatively, in response to an unfunded shock, the inflation responses are approximately 40%-64% lower compared to the case of full information. Both fiscal stimulus and supply shocks contribute significantly to COVID inflation. An unfunded tax cut can increase output and reduce debt burden, at the cost of higher lingering inflation.

Abstract: This paper examines the impact of political advertising on household consumption behavior in the United States. Using a regression discontinuity design that exploits variation in advertisement exposure across media market borders, we show that exposure to political advertisements significantly affects household consumption. Weekly county-level nondurable spending increases by 0.24% for every additional one standard deviation of positive economic-themed advertisements. The effect is heterogeneous by county-level demographics, with a stronger consumption response from counties with a higher proportion of older and low-income residents. We also provide evidence on the underlying mechanisms, showing that these effects operate through changes in household sentiment and the economic information conveyed in the advertisements.

Abstract: This paper examines partisanship in public perceptions of the Federal Reserve. In all years from 2001 through 2023, trust in the Federal Reserve was highest for respondents of the same party as the President. The partisan effects were larger than other demographic differences in trust, but do not explain the large partisan gap in inflation expectations in those years. We conducted a new survey-based information experiment before and after the Presidential inauguration in 2025, and found a changed pattern: Republicans continued to have lower trust in the Fed than did Democrats, even after a Republican President was elected and took office. Yet, Republicans had much lower inflation expectations than Democrats. Responses to open-ended survey questions point to tariffs and President Trump himself as most salient to consumers when considering how inflation will evolve.

Abstract: Members of a monetary union have limited control over monetary policy. This can elevate the role of fiscal policy as the primary macroeconomic tool against country-specific shocks. This paper argues that there is an additional channel of transmission of fiscal policy in countries within a union via consumer sentiments. Using data for the European Economic and Monetary union, I provide evidence that the sentiments channel for fiscal policy is strongly present in some European countries but the effect is heterogeneous across countries. The strong response of sentiments to fiscal news makes fiscal consolidation more costly in relatively high debt euro area countries.