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

51 Pages Posted: 18 Oct 2010

See all articles by Antje Berndt

Antje Berndt

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Sevin Yeltekin

Carnegie Mellon University - David A. Tepper School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 2010

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, over 9% of the U.S. government's unanticipated spending needs were financed by a reduction in the market value of debt and more than 73% by an increase in primary surpluses. Additionally, we find that long-term debt is more effective at absorbing fiscal risk than short-term debt.

Suggested Citation

Berndt, Antje and Lustig, Hanno N. and Yeltekin, Sevin, How Does the U.S. Government Finance Fiscal Shocks? (October 2010). NBER Working Paper No. w16458. Available at SSRN: https://ssrn.com/abstract=1692521

Antje Berndt (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics ( email )

Canberra, ACT 0200
Australia

HOME PAGE: http://www.cbe.anu.edu.au/about/staff-directory/?profile=Antje-Berndt

Hanno N. Lustig

Stanford Graduate School of Business ( email )

Stanford GSB
655 Knight Way
Stanford, CA California 94305-6072
United States
3108716532 (Phone)

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

Register to save articles to
your library

Register

Paper statistics

Downloads
16
Abstract Views
539
PlumX Metrics