Chronicle of a war foretold : the macroeconomic effects of anticipated defence spending shocks
Ben Zeev, Nadav (Ben Gurion University of the Negev)
Pappa, Evi (Universitat Autònoma de Barcelona)

Date:	2017
Abstract:	We identify US defense news shocks as shocks that best explain future moviments in defense spending over a five-year horizon and are orthogonal to current defense spending. Our identified shocks are strongly correlated with the Ramey (2011) news shocks, but explain a larger share of macroeconomic fluctuations and have significant demand effects. Fiscal news induces significant and persistent increases in output, consumption, investment, hours and the interest rate. Standard DSGE models fail to produce such a pattern. We propose a sticky price model with variable capital utilization, capital adjustment costs, and rule-of-thumb consumers that replicates the empirical findings and allows us to test the validity of our methodology for extracting anticipated fiscal shocks from the data.
Grants:	Ministerio de Economía y Competitividad ECO2012-32392
Rights:	Tots els drets reservats.
Language:	Anglès
Document:	Article ; recerca ; Versió sotmesa a revisió
Subject:	SVAR ; Maximum forecast error variance ; Defense news shocks ; DSGE model
Published in:	Economic journal, Vol. 127 Núm. 603 (2017) , p. 1568-1597, ISSN 1468-0297

DOI: 10.1111/ecoj.12349

Preprint 49 p, 2.8 MB

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