How Does The US Government Finance Fiscal Shocks?

We develop a method for identifying and quantifying the fiscal channels that help finance government spending shocks. We define fiscal shocks as surprises in defense spending and show that they are more precisely identified when defense stock data are used in addition to aggregate macroeconomic data...

Full description

Saved in:
Bibliographic Details
Published in:American economic journal. Macroeconomics 2012-01, Vol.4 (1), p.69-104
Main Authors: Berndt, Antje, Lustig, Hanno, Yeltekin, Şevin
Format: Article
Language:English
Subjects:
Bond markets
Bond portfolios
Budgets
Central banks
Claims adjustment
Debt
Debt management
Decomposition
Defense industry
Defense spending
Deficit financing
Economic models
Economic statistics
Economic theory
Financial instruments
Government
Government spending
Long term debt
Macroeconomics
Public debt
Rates of return
Short term debt
Studies
Surplus
Taxation
Valuation
Vector autoregression
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We develop a method for identifying and quantifying the fiscal channels that help finance government spending shocks. We define fiscal shocks as surprises in defense spending and show that they are more precisely identified when defense stock data are used in addition to aggregate macroeconomic data. Our results show that in the postwar period, about 9 percent of the US government's unanticipated spending needs were financed by a reduction in the market value of debt and more than 70 percent by an increase in primary surpluses.Additionally, we find that long-term debt is more effective at absorbing fiscal risk than short-term debt.
ISSN:1945-7707
1945-7715
DOI:10.1257/mac.4.1.69