FRBSF Economic Letters

Economic analysis for a general audience

Tim Mahedy and Daniel J. Wilson


Thanks in large part to recently enacted tax cuts, U.S. fiscal policy has taken a decidedly procyclical turn—providing stimulus when the economy is growing. In fact, the projected increase in the federal deficit over the next few years would represent the most procyclical fiscal policy stance since the Vietnam War. This matters because many recent studies have found that fiscal stimulus has a smaller impact when the economy is strong, implying that the near-term boost to GDP growth could be two-thirds or less of that from previous tax cuts.

View past FRBSF Economic Letters



Analysis of current economic developments and the outlook

SF Fed Forecast Preview

The SF Fed Forecast Preview is an advance release of the monthly SF Fed FedViews publication. Our forecasts of GDP, inflation, and unemployment will usually be released will usually be released on the second Tuesday of each month.

Western Economic Developments

Western Economic Developments is linked to via Fed in Print only.

Working Papers

The latest in economic research

Kevin J. Lansing

This paper develops a real business cycle model with five types of fundamental shocks and one "equity sentiment shock" that captures animal spirits-driven fluctuations. The representative agent's perception that movements in equity value are partly driven by sentiment turns out to be close to self-fulfilling. I solve for the sequences of shock realizations that allow the model to exactly replicate the observed time paths of U.S. consumption, investment, hours worked, the stock of physical capital, capital's share of income, and the S&P 500 market value from 1960.Q1 onwards. The model-identified sentiment shock is strongly correlated with survey-based measures of U.S. consumer sentiment. Counterfactual scenarios with the model suggest that the equity sentiment shock has an important influence on the paths of most U.S. macroeconomic variables.

View past Working Papers