scholarly journals The effects of military and non-military government expenditures on private consumption

2017 ◽  
Vol 54 (3) ◽  
pp. 442-456 ◽  
Author(s):  
Marco Lorusso ◽  
Luca Pieroni
Keyword(s):  
Private Consumption ◽  
Negative Impact ◽  
Military Spending ◽  
New Keynesian ◽  
Impulse Response Functions ◽  
Military Government ◽  
Budget Deficits ◽  
Us Economy ◽  
Dynamic Stochastic ◽  
The Impact

In this article, we provide evidence that civilian and military government spending have specific characteristics that can affect private consumption differently. Our vector autoregressive (VAR) estimates for the US economy for the period 1960–2013 show that civilian expenditure induces a positive and significant response on private consumption, whereas military spending has a negative impact. We also analyze the effects of these public spending components for the subsamples 1960–79 and 1983–2013, respectively. Our results show that the main transmission channels of both civilian and military expenditures have changed over time. We adopt a new Keynesian approach and develop a dynamic stochastic general equilibrium (DSGE) model in order to simulate the empirical evidence. Both the larger persistence of shocks in military spending and the different financing mechanisms, which account for the propensity of policymakers to use budget deficits to finance wars, mimic the differences in the empirical responses of private consumption. Simulated impulse response functions of alternative specification models prove the robustness of our analysis. In particular, we assess the impact of civilian and military shocks in the presence of different (i) shares of heterogeneous households, (ii) price rigidities, and (iii) monetary reactions in response to different government shocks.

scholarly journals Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy

2019 ◽  
Vol 12 (3) ◽  
pp. 141 ◽  
Author(s):  
Marco Lorusso ◽  
Luca Pieroni
Keyword(s):  
Private Consumption ◽  
Positive Impact ◽  
Public Spending ◽  
Robustness Analysis ◽  
Military Spending ◽  
Financial Liberalisation ◽  
Dynamic Stochastic ◽  
Spending Shocks ◽  
The Impact ◽  
The U.S

In this paper, we disentangle public spending components in order analyse their effects on the U.S. economy. Our Dynamic Stochastic General Equilibrium Model (DSGE) model includes both civilian and military expenditures. We take into account the changes in the effects of these public spending components before and after the structural break that occurred in the U.S. economy around 1980, namely financial liberalisation. Therefore, we estimate our model with Bayesian methods for two sample periods: 1954:3–1979:2 and 1983:1–2008:2. Our results suggest that total government spending has a positive effect on output, but it induces a fall in private consumption. Moreover, we find important differences between the effects of civilian and military spending. In the pre-1980 period, higher civilian spending induced a rise in private consumption, whereas military spending shocks systematically decreased it. Our findings indicate that civilian spending has a more positive impact on output than military expenditure. Our robustness analysis assesses the impact of public spending shocks under alternative monetary policy assumptions.

ENERGY IN A MODEL OF FIRM ENTRY

2018 ◽  
Vol 24 (2) ◽  
pp. 231-254
Author(s):  
Soma Patra
Keyword(s):  
Negative Impact ◽  
The United States ◽  
Energy Price ◽  
Firm Entry ◽  
Energy Prices ◽  
Dsge Model ◽  
Price Shocks ◽  
Firm Level ◽  
Dynamic Stochastic ◽  
The Impact

Nine out of the last ten recessions in the United States have been preceded by an increase in the price of oil as noted by Hamilton [Palgrave Dictionary of Economics]. Given the small share of energy in gross domestic product this phenomenon is difficult to explain using standard models. In this paper, I show that firm entry can be an important transmission and amplifying channel for energy price shocks. The results from the baseline dynamic stochastic general equilibrium (DSGE) model predict a drop in output that is two times the impact in a model without entry. The model also predicts an increase in energy prices would lead to a decline in real wages, investment, consumption, and return on investment. Additionally, using US firm level data, I demonstrate that a rise in energy prices has a negative impact on firm entry as predicted by the DSGE model. This lends further support toward endogenizing firm entry when analyzing the effects of energy price shocks.

scholarly journals Statistical Analysis of the Performance of a Big and Open Economy: The Case of the U.S.

2018 ◽  
pp. 10-17
Author(s):  
O. V. Zhuravliov ◽  
О. М. Simachova
Keyword(s):  
United States ◽  
Open Economy ◽  
Developing Economies ◽  
Negative Impact ◽  
The United States ◽  
Us Economy ◽  
The Us ◽  
The World ◽  
Macroeconomic Indicators ◽  
The Impact

The US economy is one of the richest and most diversified economies in the world and keeps its leadership in the global economy for the past 100 years. The United States is a global leader in computer technology, pharmaceuticals and the manufacture of medical, aerospace and military equipment. And although services make up about 80% of GDP, the US remains the second largest producer of industrial goods in the world and is a leader in research and development. President Donald Trump was elected in November 2016, promising a big gap with his predecessor’s regulatory, tax and trade policies. Therefore, the current socio-economic status of the USA and the possible ways of its development in the future are interesting for studying the impact on other economies, in particular, on the Ukrainian economy and the search for new and optimal ways of developing relations between the United States and Ukraine. Key macroeconomic indicators of the US economy in 2011–2018 are analyzed, demonstrating the influence of Donald Tramp’s new policy on changes in the indicators of the economy, the labor market, trade, etc., as well as possible ways of development in the coming years. The review of key macroeconomic indicators gives grounds for classifying the American economy as healthy one. Rates of GDP growth will remain in the range of 2 to 3%. These rates of growth in the world’s largest economy are callable to ensure a substantial increase in the global activity. But uncertainties in the politics may hinder global growth and have clearly negative impact on the investment growth in developed and developing economies.

scholarly journals HETEROGENEITY IN WAGE SETTING BEHAVIOR IN A NEW-KEYNESIAN MODEL

2019 ◽  
Vol 24 (6) ◽  
pp. 1512-1546
Author(s):  
Sylvester C. W. Eijffinger ◽  
Anderson Grajales-Olarte ◽  
Burak R. Uras
Keyword(s):  
New Keynesian ◽  
Wage Rigidity ◽  
Nominal Wage ◽  
Dsge Model ◽  
Wage Setting ◽  
Sticky Information ◽  
Bayesian Techniques ◽  
Us Economy ◽  
Output Fluctuations ◽  
Dynamic Stochastic

In this paper we estimate a New-Keynesian dynamic stochastic general equilibrium (NK DSGE) model with heterogeneity in price and wage setting behavior. In a recent study, Coibion and Gorodnichenko develop a DSGE model, in which firms follow four different types of price setting schemes: sticky prices, sticky information, rule-of-thumb, or flexible prices. We enrich Coibion and Gorodnichenko framework by incorporating heterogeneity in nominal wage setting behavior among households. We solve this DSGE model and estimate it using Bayesian techniques for the US economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. More importantly, we identify qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, which a standard NK model with only Calvo-type wage rigidity fails to achieve. We also show that modeling wage-rigidity heterogeneity—as opposed to standard Calvo wages—amplifies the macroeconomic output fluctuations resulting from a technology shock while it mitigates the output fluctuations following a monetary tightening.

The assessment of budget expenditures impact on economic activity

2018 ◽  
pp. 28-45
Author(s):  
I. V. Belyakov
Keyword(s):  
Government Spending ◽  
Economic Activity ◽  
Private Consumption ◽  
Negative Impact ◽  
Positive Impact ◽  
Private Investment ◽  
Short Term ◽  
Government Investment ◽  
Macroeconomic Conditions ◽  
The Impact

The article explores the impact of government spending on the key components of economic activity in Russia, such as private consumption and investment. The author pays serious attention to the theoretical justifications of the possible impact of fiscal policy on economic growth and its components, as well as reviews the empirical results obtained in this area. In the empirical part of the article, government expenditures are represented by the “GDP by expenditure” items — government consumption and government investment. The results, for Russian data covering the period of 1995—2017, indicate a short-term positive impact of government spending on private consumption and a negative impact on private investment. It also proves important to take into consideration the changes in macroeconomic conditions that occurred approximately in the middle of the observed period.

Budget Deficits in Kenya: The Impact of Foreign aid on Sovereignty

2017 ◽  
Vol 2 (1) ◽  
pp. 123-148
Author(s):  
AnnBeatrice Njarara
Keyword(s):  
Foreign Aid ◽  
Negative Impact ◽  
Special Focus ◽  
Budget Deficits ◽  
National Budget ◽  
Working Definition ◽  
The Impact

A national budget needs funding with the sources being either domestic or foreign. Foreign sources of funding seem to dominate the Kenyan context. This paper argues that a country with a national budget dependent on foreign aid can be held hostage by the holders of the purse strings. Further, that this dependency has a negative impact on Kenya’s economic sovereignty. It is this impact that is of relevance to this paper. In this spirit the paper critically analyses Kenya’s borrowing trend with a special focus on foreign aid, defines by use of a working definition the importance of economic sovereignty, explores how this borrowing trend affects Kenya’s economic sovereignty and offers solutions on regaining of Kenya’s economic sovereignty.

The new macroeconometrics: A Bayesian approach

2018 ◽  
Author(s):  
Peter Challenor ◽  
Doug McNeall ◽  
James Gattiker
Keyword(s):  
Central Banks ◽  
Dynamic Stochastic General Equilibrium ◽  
Public Institutions ◽  
New Keynesian ◽  
Dsge Models ◽  
Us Economy ◽  
Private Organizations ◽  
Final Good ◽  
The Us ◽  
Dynamic Stochastic

This article examines the dynamics of the US economy over the last five decades using Bayesian analysis of dynamic stochastic general equilibrium (DSGE) models. It highlights an example application in what is commonly referred to as the new macroeconometrics, which combines macroeconomics with econometrics. The article describes a benchmark New Keynesian DSGE model that incorporates four types of agents: households that consume, save, and supply labour to a labour ‘packer’; a labour ‘packer’ that puts together the labour supplied by different households into an homogeneous labour unit; intermediate good producers, who produce goods using capital and aggregated labour; and a final good producer that mixes all the intermediate goods. It also considers the application of the model in policy analysis for public institutions such as central banks, along with private organizations and businesses. Finally, it discusses three avenues for further research in the estimation of DSGE models.

scholarly journals Modeling the Effect of Interest Rate Uncertainty on Residents’ Consumption – Based on a DSGE Model Embedded Stochastic Volatility

2018 ◽  
Vol 22 (6) ◽  
pp. 846-852
Author(s):  
Xiaowen Hu ◽  
◽  
Chengchen Hu ◽  
Yiyu Yao
Keyword(s):  
Interest Rate ◽  
Stochastic Volatility ◽  
Negative Impact ◽  
Structural Equations ◽  
Stochastic Volatility Model ◽  
Current Period ◽  
Volatility Model ◽  
Dynamic Stochastic ◽  
The Government ◽  
The Impact

Modeling the effect of uncertainty shock usually employs VAR method. The approach however often leads to the results unstable with different structural equations. Especially it is modeled without a microscopic basis which often implies wrong policy advice. A new method to model the effect of interest rate uncertainty is proposed in this paper that overcomes this limitation. A stochastic volatility model is embedded into a dynamic stochastic general equilibrium framework to study the influence of interest rate uncertainty on the residents’ consumption. Using the third-order perturbation method to identify the impact of interest rate uncertainty on consumption. It is found by simulation that with the interest rate uncertainty increased, the consumption of residents in the current period has obviously decreased due to the preventive saving mechanism. Variance analysis shows that interest rate uncertainty shocks can explain 8% share of consumption volatility. The empirical results are robust when changing the parameter values and the prior distribution of the parameters. The conclusion shows the government should strengthen to guide the public reasonable expectations, to avoid the negative impact of interest rate uncertainty.

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