This paper investigates industry-level effects of government purchases in order to shed light on the transmission mechanism for government spending on the aggregate economy. We begin by highlighting the different theoretical predictions concerning the effects of government spending on industry...

Recent papers by Kim and Nelson (1999) and McConnell and Perez-Quiros (2000) uncover a dramatic decline in the volatility of U.S. GDP growth beginning in 1984. Determining whether the source is good luck, good policy or better inventory management has since developed into an active area of...