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Chronicle of a war foretold: the macroeconomic effects of anticipated defense spending shocks

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URI: https://hdl.handle.net/10016/34777
ISSN: 0013-0133
DOI: https://doi.org/10.1111/ecoj.12349
UXXI: AR/0000029318
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chronicle_EJ_2017_ps.pdf (915.99 KB)
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2017-01-30
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Oxford University Press
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Abstract
We identify news shocks to U.S. defense spending as the shocks that best explain future movements in defense spending over a five-year horizon and are orthogonal to current defense spending. Our identi ed shocks, though correlated with the Ramey (2011) news shocks, explain a larger share of macroeconomic uctuations and produce signi cant demand efects. News about increases in defense spending induces signi - cant and persistent increases in output, hours worked, in ation and the interest rate, and signi cant increases in investment, consumption and the excess returns of defense contractors on impact.
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SVAR, MaximumfForecast error variance, Defense news shocks, DSGE model
Bibliographic citation
Ben Zeev, N., & Pappa, E. (2017). Chronicle of a war foretold: the macroeconomic effects of anticipated defence spending shocks. The Economic Journal, 127 (6)03, pp. 1568-1597.
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