Markets interpret plans for unexpectedly high levels of government spending during periods of uncertainty as a sign that bad times are on the way, according to new research from the European Central Bank.
The working paper, published on September 15, says that when governments announce large spending plans, stock markets generally react positively and share values tend to start rising.
However, the authors – Leonardo Melosi, Hiroshi Morita, Anna Rogantini Picco and Francesco Zanetti – argue that
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