Chronicle of a War Foretold: The Macroeconomic Effects of Anticipated Defence Spending Shocks | Zendy

Ben Zeev Nadav | Zendy; Pappa Evi | Zendy

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Chronicle of a War Foretold: The Macroeconomic Effects of Anticipated Defence Spending Shocks

Author(s) -

Ben Zeev Nadav,

Pappa Evi

Publication year - 2017

Publication title -

the economic journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.683

H-Index - 160

eISSN - 1468-0297

pISSN - 0013-0133

DOI - 10.1111/ecoj.12349

Subject(s) - economics , monetary economics , inflation (cosmology) , consumption (sociology) , consumer spending , investment (military) , interest rate , government spending , macroeconomics , recession , market economy , social science , physics , sociology , politics , theoretical physics , political science , law , welfare

We identify news shocks to US defence spending as the shocks that best explain future movements in defence spending over a five‐year horizon and are orthogonal to current defence spending. Our identified shocks, though correlated with the Ramey (2011) news shocks, explain a larger share of macroeconomic fluctuations and produce significant demand effects. News about increases in defence spending induces significant and persistent increases in output, hours worked, inflation and the interest rate, and significant increases in investment, consumption and the excess returns of defence contractors on impact.

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