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Episodes of War and Peace in an Estimated Open Economy Model

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  • Stéphane Auray

    () (CREST-ENSAI,Université du Littoral Côte d'Opale)

  • Aurélien Eyquem

    () (CREST-ENSAI, Université de Lyon, GATE-LSE UMR CNRS 5824)

Abstract

We analyze the effects of large war episodes (world wars) on the macroeconomic dynamics of four advanced countries (France, Germany, the UK and the U.S.) by means of an estimated open-economy model. The model allows wars to produce specific effects on the economy through capital depreciation, sovereign default and a military draft. These effects, together with large surges in public spending and debt, and significant drops in labor taxes, account for the bulk of fluctuations during wars. We also use our estimations to discuss the size and state-dependence of output multipliers, and the size of welfare losses from fluctuations.

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem, 2016. "Episodes of War and Peace in an Estimated Open Economy Model," Working Papers 2016-01, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2016-01
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    Cited by:

    1. Aloui, Rym & Eyquem, Aurélien, 2019. "Spending multipliers with distortionary taxes: Does the level of public debt matter?," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 275-293.
    2. Maria Alina Carataș & Elena Cerasela Spătariu, 2019. "Global Economy Under Trade War," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 63-66, August.

    More about this item

    Keywords

    Fluctuations; War; Trade; Taxes; Public Debt; Bayesian estimations; Multipliers; Welfare.;

    JEL classification:

    • 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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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