Identifying Government Spending Shocks: It's all in the Timing
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.
Year of publication: |
2011
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Authors: | Ramey, Valerie A. |
Published in: |
The Quarterly Journal of Economics. - Oxford University Press, ISSN 1531-4650. - Vol. 126.2011, 1, p. 1-50
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Publisher: |
Oxford University Press |
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