IDENTIFYING GOVERNMENT SPENDING SHOCKS: IT'S ALL IN THE TIMING

Standard vector autoregression (VAR) identification methods find that government spending raises consumption and real wages; the Ramey—Shapiro narrative approach finds the opposite. I show that a key difference in the approaches is the timing. Both professional forecasts and the narrative approach s...

Full description

Saved in:
Bibliographic Details
Published in:The Quarterly journal of economics 2011-02, Vol.126 (1), p.1-50
Main Author: Ramey, Valerie A.
Format: Article
Language:English
Subjects:
Causality
Consumer economics
Consumer spending
Consumption
Defense spending
Economic forecasting
Economic information
Economic models
Economic shock
Government spending
Gross domestic product
Income taxes
Military defense
Public expenditure
Real wages
Regression analysis
Studies
Taxes
Time
Vector-autoregressive models
War
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Standard vector autoregression (VAR) identification methods find that government spending raises consumption and real wages; the Ramey—Shapiro narrative approach finds the opposite. I show that a key difference in the approaches is the timing. Both professional forecasts and the narrative approach shocks Granger-cause the VAR shocks, implying that these shocks are missing the timing of the news. Motivated by the importance of measuring anticipations, I use a narrative method to construct richer government spending news variables from 1939 to 2008. The implied government spending multipliers range from 0.6 to 1.2.
ISSN:0033-5533
1531-4650
DOI:10.1093/qje/qjq008