Abstract

http://ssrn.com/abstract=1354699
 
 

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How Does the U.S. Government Finance Fiscal Shocks?


Antje Berndt


Poole College of Management, NC State University

Hanno N. Lustig


UCLA - Anderson School of Management; National Bureau of Economic Research (NBER)

Sevin Yeltekin


Carnegie Mellon University - David A. Tepper School of Business

May 20, 2011

American Economic Journal: Macroeconomics, 2012, vol. 4(1)

Abstract:     
We develop a method for identifying and quantifying the fiscal channels that help finance government spending shocks. We define fiscal shocks as surprises in defense spending and show that they are more precisely identified when defense stock data are used in addition to aggregate macroeconomic data. Our results show that in the postwar period, about 9% of the U.S. government’s unanticipated spending needs were financed by a reduction in the market value of debt and more than 70% by an increase in primary surpluses. Additionally, we find that long-term debt is more effective at absorbing fiscal risk than short-term debt.

Number of Pages in PDF File: 56

Keywords: Fiscal shocks, fiscal adjustment, defense spending, bond returns, debt maturity

JEL Classification: C5, E4, E6, G1, H6

Accepted Paper Series


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Date posted: March 6, 2009 ; Last revised: August 27, 2012

Suggested Citation

Berndt, Antje and Lustig, Hanno N. and Yeltekin, Sevin, How Does the U.S. Government Finance Fiscal Shocks? (May 20, 2011). American Economic Journal: Macroeconomics, 2012, vol. 4(1). Available at SSRN: http://ssrn.com/abstract=1354699

Contact Information

Antje Berndt
Poole College of Management, NC State University ( email )
Raleigh, NC 27695
United States
Hanno N. Lustig (Contact Author)
UCLA - Anderson School of Management ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Sevin Yeltekin
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
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