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Government Policy Response to War-Expenditure Shocks

Listed author(s):
  • Martin Fernando M.

    ()

    (Federal Reserve Bank of St. Louis)

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.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 12 (2012)
Issue (Month): 1 (July)
Pages: 1-40

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Handle: RePEc:bpj:bejmac:v:12:y:2012:i:1:n:25
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  1. Fernando M. Martin, 2010. "Government Policy in Monetary Economies," Discussion Papers dp10-01, Department of Economics, Simon Fraser University.
  2. Albert Marcet & Albert Scott, 2007. "Debt and Deficit Fluctuations and the Structure of Bond Markets," Working Papers 332, Barcelona Graduate School of Economics.
  3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
  4. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Models," MPRA Paper 21030, University Library of Munich, Germany.
  5. Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
  6. Fernando M. Martin, 2004. "A Positive Theory of Government Debt," Macroeconomics 0408013, EconWPA, revised 12 Oct 2004.
  7. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
  8. Aleksander Berentsen & Christopher Waller, 2008. "Outside Versus Inside Bonds," IEW - Working Papers 372, Institute for Empirical Research in Economics - University of Zurich.
  9. 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.
  10. Martin, Fernando M., 2011. "On the joint determination of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 132-145, March.
  11. Sanjay K. Chugh & S. Boragan Aruoba, 2007. "Optimal Fiscal and Monetary Policy when Money is Essential," 2007 Meeting Papers 80, Society for Economic Dynamics.
  12. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1991. "Optimal fiscal and monetary policy: some recent results," Proceedings, Federal Reserve Bank of Cleveland, pages 519-546.
  13. Shin, Yongseok, 2007. "Managing the maturity structure of government debt," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1565-1571, September.
  14. Albert Marcet & Thomas J. Sargent & Juha Seppala, 1996. "Optimal taxation without state-contingent debt," Economics Working Papers 170, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2001.
  15. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
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