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

Nadav Ben Zeev, Evi Pappa

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)1568-1597
Number of pages30
JournalEconomic Journal
Volume127
Issue number603
DOIs
StatePublished - 1 Aug 2017

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