Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/70485 
Year of Publication: 
2009
Series/Report no.: 
Working Paper No. 2009-03
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
This paper explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches. The new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large US military contractors. This strategy is used to estimate the dynamic responses of output, hours, consumption and real wages to a government spending shock. We find that positive government spending shocks are associated with increases in output, hours, and consumption. Real wages initially decline after a government spending shock and then rise after a year. We estimate the government spending multiplier associated with increases in military spending to be about 0.6 over a horizon of 5 years.
Subjects: 
government spending shocks
fiscal policy
stock returns
JEL: 
E0
E30
E60
Document Type: 
Working Paper

Files in This Item:
File
Size
389.48 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.