Riots, Battles and Cycles
AbstractThis paper proposes a conceptual framework to investigate the impact of military conflicts on business cycles, as well as defense policies through enrolment mechanisms. Our framework is a variation of a Real Business Cycle model first proposed by Hercowitz and Sampson (1991) that admits explicit solutions. We extend and estimate the initial model on US data to account for specific shocks that destroy the stock of capital and that may be as large as desired. We consider two types of dynamics on the depreciation rate of capital: short-term shocks, that may be interpreted as riots and captured by a Moving Average specification, and mid-term shocks, that may be interpreted as wars and captured by a Markov Switching process. Destructions may be limited by publicly decided enrolment, which allows to question the goals defense policies should aim at. First our model reproduces usual business cycle facts. Second, it allows to characterize the macroeconomic dynamics after shocks on the depreciation rate of capital. Finally, it provides a simple framework to quantify the welfare effects of alternative (simple) defense technologies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 09-01.
Length: 18 pages
Date of creation: 10 Jan 2009
Date of revision: 05 Apr 2009
military policy; Real Business Cycle model; random coefficient autoregressive model;
Find related papers by JEL classification:
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-24 (All new papers)
- NEP-DGE-2009-01-24 (Dynamic General Equilibrium)
- NEP-MAC-2009-01-24 (Macroeconomics)
- NEP-RMG-2009-01-24 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin, Philippe & Mayer, Thierry & Thoenig, Mathias, 2008.
"Civil Wars and International Trade,"
CEPR Discussion Papers
6659, C.E.P.R. Discussion Papers.
- Baxter, Marianne & King, Robert G, 1993.
"Fiscal Policy in General Equilibrium,"
American Economic Review,
American Economic Association, vol. 83(3), pages 315-34, June.
- Ellen R. McGrattan & Lee E. Ohanian, 2006.
"Does Neoclassical Theory Account for the Effects of Big Fiscal Shocks? Evidence From World War II,"
NBER Working Papers
12130, National Bureau of Economic Research, Inc.
- Ellen R. M cG rattan & Lee E. Ohanian, 2010. "Does Neoclassical Theory Account For The Effects Of Big Fiscal Shocks? Evidence From World War Ii," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 509-532, 05.
- Ellen R. McGrattan & Lee E. Ohanian, 2008. "Does neoclassical theory account for the effects of big fiscal shocks? Evidence from World War II," Staff Report 315, Federal Reserve Bank of Minneapolis.
- Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008.
"Make Trade Not War?,"
Review of Economic Studies,
Oxford University Press, vol. 75(3), pages 865-900.
- Gregory D. Hess, 2003.
"The Economic Welfare Cost of Conflict: An Empirical Assessment,"
CESifo Working Paper Series
852, CESifo Group Munich.
- Gregory D. Hess, 2002. "The Economic Welfare Cost of Conflict: An Empirical Assessment," Claremont Colleges Working Papers 2002-08, Claremont Colleges.
- Christian Francq & Jean-Michel Zakoïan, 2000.
"Stationarity of Multivariate Markov-Switching ARMA Models,"
2000-32, Centre de Recherche en Economie et Statistique.
- Francq, C. & Zakoian, J. -M., 2001. "Stationarity of multivariate Markov-switching ARMA models," Journal of Econometrics, Elsevier, vol. 102(2), pages 339-364, June.
- Arias Andrés F. & Laura Ardila, 2003. "Military Expenditure and Economic Activity: The Colombian Case," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
- Ohanian, Lee E, 1997. "The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War," American Economic Review, American Economic Association, vol. 87(1), pages 23-40, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luc Savard).
If references are entirely missing, you can add them using this form.