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Identifying Government Spending Shocks: It's all in the Timing

  • Valerie A. Ramey

Standard vector autoregression (VAR) identification methods find that government spending raises consumption and real wages; the Ramey--Shapiro narrative approach finds the opposite. I show that a key difference in the approaches is the timing. Both professional forecasts and the narrative approach shocks Granger-cause the VAR shocks, implying that these shocks are missing the timing of the news. Motivated by the importance of measuring anticipations, I use a narrative method to construct richer government spending news variables from 1939 to 2008. The implied government spending multipliers range from 0.6 to 1.2. Copyright 2011, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/qje/qjq008
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Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 126 (2011)
Issue (Month): 1 ()
Pages: 1-50

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Handle: RePEc:oup:qjecon:v:126:y:2011:i:1:p:1-50
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