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Government Policy Response to War-Expenditure Shocks

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  • Martin Fernando M.

    (Federal Reserve Bank of St. Louis)

Abstract

The U.S. has experienced three episodes in which public expenditure temporarily increased to very high levels: the Civil War, World War I and World War II. These wars share a set of stylized facts regarding the behavior of tax revenue, government debt, primary deficit, inflation and output. I present a theory of government policy determination, whose primary ingredients are intertemporal distortion-smoothing and limited commitment, that matches these regularities qualitatively and displays empirically plausible quantitative behavior.

Suggested Citation

  • Martin Fernando M., 2012. "Government Policy Response to War-Expenditure Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-40, July.
    • Handle: RePEc:bpj:bejmac:v:12:y:2012:i:1:n:25
    DOI: 10.1515/1935-1690.2151
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    Cited by:

    1. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    2. Fernando M. Martin, 2016. "The Value of Constraints on Discretionary Government Policy," Working Papers 2016-19, Federal Reserve Bank of St. Louis.
    3. Auray, Stéphane & Eyquem, Aurélien, 2019. "Episodes of war and peace in an estimated open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 203-249.
    4. Fernando M. Martin, 2013. "Government Policy In Monetary Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 185-217, February.
    5. Fernando Martin, 2019. "How to Starve the Beast: Fiscal and Monetary Policy Rules," 2019 Meeting Papers 1181, Society for Economic Dynamics.
    6. Cao, Qingqing, 2024. "Optimal fiscal and monetary policy with collateral constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 161(C).
    7. Stéphane Auray & Aurélien Eyquem, 2014. "War, Taxes and Trade," Working Papers 2014-29, Center for Research in Economics and Statistics.
    8. Chao Gu & Han Han & Randall Wright, 2016. "The Effects of Monetary Policy and Other Announcements," Working Papers 1621, Department of Economics, University of Missouri.

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