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

Ben-Gurion University of the Negev

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

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	American 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

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

Defense spending
Total factor productivity
Unanticipated defense shocks

All Science Journal Classification (ASJC) codes

Economics and Econometrics
Control and Optimization
Applied Mathematics

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10.1016/j.jedc.2015.06.004

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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.",

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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.

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KW - Total factor productivity

KW - Unanticipated defense shocks

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DO - 10.1016/j.jedc.2015.06.004

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SP - 205

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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

UN SDGs

Keywords

All Science Journal Classification (ASJC) codes

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