How does the U.S. government finance fiscal shocks?
AbstractWe 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% of the U.S. government’s unantic- ipated spending needs were financed by a reduction in the market value of debt and more than 70% by an increase in primary sur- pluses. Additionally, we find that long-term debt is more effective at absorbing fiscal risk than short-term debt.
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Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2006-E70.
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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
Other versions of this item:
- Antje Berndt & Hanno Lustig & Sevin Yeltekin, 2010. "How Does the U.S. Government Finance Fiscal Shocks?," NBER Working Papers 16458, National Bureau of Economic Research, Inc.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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- George J. Hall & Thomas J. Sargent, 2011.
"Interest Rate Risk and Other Determinants of Post-WWII US Government Debt/GDP Dynamics,"
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- George J. Hall & Thomas J. Sargent, 2010. "Interest Rate Risk and Other Determinants of Post-WWII U.S. Government Debt/GDP Dynamics," NBER Working Papers 15702, National Bureau of Economic Research, Inc.
- Cochrane, John H., 2011.
"Understanding policy in the great recession: Some unpleasant fiscal arithmetic,"
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- John H. Cochrane, 2010. "Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic," NBER Working Papers 16087, National Bureau of Economic Research, Inc.
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