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Macroeconomic Effects Of Terrorist Shocks In Israel

Author

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  • Denis Larocque
  • Genevieve Lincourt
  • Michel Normandin

Abstract

This paper estimates a structural vector autoregression to assess the empirical effects of terrorism on output and prices in Israel. Long-run restrictions are used to interpret the effects in terms of aggregate demand and supply curves. The responses indicate that the immediate effects of terrorism are similar to those associated with a negative demand shock. Such a leftward shift of the aggregate demand curve is consistent with the existence of adverse effects on most components of aggregate expenditure documented in previous empirical studies. The long-term consequences of terrorism are similar to those related to a negative supply shock. Such a leftward shift of the long-run aggregate supply curve agrees with adverse effects on the determinants of the potential output, such as contractions of physical capital highlighted in earlier work, as well as reductions of technological innovations and slowdowns of net immigrations, which have not been fully analyzed in the existing empirical literature.

Suggested Citation

  • Denis Larocque & Genevieve Lincourt & Michel Normandin, 2010. "Macroeconomic Effects Of Terrorist Shocks In Israel," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(4), pages 317-336.
    • Handle: RePEc:taf:defpea:v:21:y:2010:i:4:p:317-336
    DOI: 10.1080/10242694.2010.491705
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    Cited by:

    1. Benchimol, Jonathan & El-Shagi, Makram, 2020. "Forecast performance in times of terrorism," Economic Modelling, Elsevier, vol. 91(C), pages 386-402.
    2. Imlak Shaikh, 2019. "Behaviors of Stocks and Fear Index from Terrorist Attacks: Empirical Evidence from SENSEX and NVIX," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(2), pages 195-219, September.
    3. Yeeles, Adam & Akporiaye, Alero, 2016. "Risk and resilience in the Nigerian oil sector: The economic effects of pipeline sabotage and theft," Energy Policy, Elsevier, vol. 88(C), pages 187-196.
    4. Kollias, Christos & Manou, Efthalia & Papadamou, Stephanos & Stagiannis, Apostolos, 2011. "Stock markets and terrorist attacks: Comparative evidence from a large and a small capitalization market," European Journal of Political Economy, Elsevier, vol. 27(S1), pages 64-77.
    5. Kiendrebeogo,Youssouf & Ianchovichina,Elena & Kiendrebeogo,Youssouf & Ianchovichina,Elena, 2016. "Who supports violent extremism in developing countries ? analysis of attitudes based on value surveys," Policy Research Working Paper Series 7691, The World Bank.
    6. Daniel G. Arce, 2019. "On the human consequences of terrorism," Public Choice, Springer, vol. 178(3), pages 371-396, March.

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    More about this item

    Keywords

    Output; Price; and Terrorist Indices; Structural Vector Autoregressions; Long-run Identifying Restrictions; Dynamic Responses and Variance Decompositions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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