Multipliers of unexpected increases in defense spending: An empirical investigation

Nadav Ben Zeev; Evi Pappa

doi:10.1016/j.jedc.2015.06.004

Multipliers of unexpected increases in defense spending: An empirical investigation

Nadav Ben Zeev, Evi Pappa

Department of Economics

Research output: Contribution to journal › Article › peer-review

10 Scopus citations

Abstract

We show that unexpected increases in defense spending increase total factor productivity (TFP) and output and decrease investment in US quarterly data. Yet, the output multiplier is zero when the TFP response is shut down. We examine various explanations for this phenomenon and find that the rise in TFP is due to the presence of measurement error in quarterly data. Using artificial data generated from an RBC model with measurement error, we demonstrate the suitability of our identification approach for recovering the true output multiplier in the presence of measurement error.

Original language	English
Pages (from-to)	205-226
Number of pages	22
Journal	Journal of Economic Dynamics and Control
Volume	57
DOIs	https://doi.org/10.1016/j.jedc.2015.06.004
State	Published - 1 Aug 2015

Keywords

Defense spending
Total factor productivity
Unanticipated defense shocks

ASJC Scopus subject areas

Economics and Econometrics
Control and Optimization
Applied Mathematics

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10.1016/j.jedc.2015.06.004

Cite this

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title = "Multipliers of unexpected increases in defense spending: An empirical investigation",

abstract = "We show that unexpected increases in defense spending increase total factor productivity (TFP) and output and decrease investment in US quarterly data. Yet, the output multiplier is zero when the TFP response is shut down. We examine various explanations for this phenomenon and find that the rise in TFP is due to the presence of measurement error in quarterly data. Using artificial data generated from an RBC model with measurement error, we demonstrate the suitability of our identification approach for recovering the true output multiplier in the presence of measurement error.",

keywords = "Defense spending, Total factor productivity, Unanticipated defense shocks",

author = "{Ben Zeev}, Nadav and Evi Pappa",

note = "Funding Information: We would like to thank an anonymous referee and the editor, Christopher Otrok, as well as Markus Bruckner, Fabio Canova, Antonia Diaz, John Fernald, Valerie Ramey, Nora Traum, Sreczo Zimic, and participants at the VIII REDg Workshop and CSEF seminar for helpful comments and suggestions, Akos Valentinyi for providing us with data on hours in different industries, and Zelda Brutti and Andresa Lagerborg for their assistance. Evi Pappa acknowledges the financial support from the Spanish Ministry of Science and Innovation through Grant ECO2012-32392 , the Generalitat of Catalonia through Grant SGR2009-00350 , and the Barcelona Graduate School Research Network . Publisher Copyright: {\textcopyright} 2015 Elsevier B.V.",

year = "2015",

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doi = "10.1016/j.jedc.2015.06.004",

language = "English",

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T2 - An empirical investigation

AU - Ben Zeev, Nadav

AU - Pappa, Evi

N1 - Funding Information: We would like to thank an anonymous referee and the editor, Christopher Otrok, as well as Markus Bruckner, Fabio Canova, Antonia Diaz, John Fernald, Valerie Ramey, Nora Traum, Sreczo Zimic, and participants at the VIII REDg Workshop and CSEF seminar for helpful comments and suggestions, Akos Valentinyi for providing us with data on hours in different industries, and Zelda Brutti and Andresa Lagerborg for their assistance. Evi Pappa acknowledges the financial support from the Spanish Ministry of Science and Innovation through Grant ECO2012-32392 , the Generalitat of Catalonia through Grant SGR2009-00350 , and the Barcelona Graduate School Research Network . Publisher Copyright: © 2015 Elsevier B.V.

PY - 2015/8/1

Y1 - 2015/8/1

N2 - We show that unexpected increases in defense spending increase total factor productivity (TFP) and output and decrease investment in US quarterly data. Yet, the output multiplier is zero when the TFP response is shut down. We examine various explanations for this phenomenon and find that the rise in TFP is due to the presence of measurement error in quarterly data. Using artificial data generated from an RBC model with measurement error, we demonstrate the suitability of our identification approach for recovering the true output multiplier in the presence of measurement error.

AB - We show that unexpected increases in defense spending increase total factor productivity (TFP) and output and decrease investment in US quarterly data. Yet, the output multiplier is zero when the TFP response is shut down. We examine various explanations for this phenomenon and find that the rise in TFP is due to the presence of measurement error in quarterly data. Using artificial data generated from an RBC model with measurement error, we demonstrate the suitability of our identification approach for recovering the true output multiplier in the presence of measurement error.

KW - Defense spending

KW - Total factor productivity

KW - Unanticipated defense shocks

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U2 - 10.1016/j.jedc.2015.06.004

DO - 10.1016/j.jedc.2015.06.004

M3 - Article

AN - SCOPUS:84937427341

SN - 0165-1889

VL - 57

SP - 205

EP - 226

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

ER -

Multipliers of unexpected increases in defense spending: An empirical investigation

Abstract

Keywords

ASJC Scopus subject areas

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