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Episodes of war and peace in an estimated open economy model

Author

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  • Stéphane Auray

    (CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz])

  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper proposes a straight model-based analysis of historical war episodes. We analyze the effects of world wars on the macroeconomic dynamics in the US, France, Germany, and the UK, by means of an estimated open-economy model where war episodes are modeled as an additional source of observed shocks. The model allows war episodes to affect the economy through lower capital depreciation, partial default on public debt, a military draft, changes in household preferences, and spillovers on other shocks (productivity, investment, trade, policy variables). In the US, the bulk of fluctuations during war episodes can be mainly explained by the rise in government spending, and the war shock plays a minor role. In other countries, the war shock is an essential driver of fluctuations. We also discuss the size and state-dependence of public spending multipliers, and produce a counterfactual exercise to quantify the welfare losses from war episodes.
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Suggested Citation

  • Stéphane Auray & Aurélien Eyquem, 2019. "Episodes of war and peace in an estimated open economy model," Post-Print halshs-02193352, HAL.
  • Handle: RePEc:hal:journl:halshs-02193352
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02193352
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    Cited by:

    1. repec:eee:jmacro:v:60:y:2019:i:c:p:275-293 is not listed on IDEAS
    2. 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.
    3. repec:ovi:oviste:v:xix:y:2019:i:1:p:63-66 is not listed on IDEAS

    More about this item

    Keywords

    Taxes; Debt; Trade; War; 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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