This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Journal: Macroeconomics
  4. Forthcoming Articles
  5. Macroeconomic Frameworks: Reconciling Evidence and Model Predictions from Demand Shocks

Macroeconomic Frameworks: Reconciling Evidence and Model Predictions from Demand Shocks

  • Alan J. Auerbach
  • Yuriy Gorodnichenko
  • Daniel Murphy
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

How do demand shocks affect the economy? We exploit detailed data on U.S. defense spending to examine a large set of outcome variables in response to well-identified local demand shocks, jointly examining new outcomes (e.g., firm entry and housing rents) and other key macroeconomic outcomes and elasticities that previously have been estimated separately or in settings with weaker identification. We find that government spending crowds in employment, firm entry, private consumption, and labor productivity while also increasing local housing rents. To reconcile the evidence with theory, we study a model of economic slack.

Downloads