An Analysis of Government Spending in the Frequency Domain

44 Pages Posted: 28 Jul 1999

See all articles by Darrel S. Cohen

Darrel S. Cohen

Federal Reserve Board - Division of Research and Statistics

Date Written: June 21, 1999

Abstract

This paper utilizes frequency-domain techniques to identify and characterize economically important properties of government spending. Using post-war data for the United States, the paper first identifies peaks in the estimated spectra of the major components of fiscal spending. Second, the paper examines the relationship between these fiscal variables and various measures of aggregate economic activity. The analysis reveals that defense spending is best modeled as exogenous with respect to the aggregate economy and that nondefense spending (growth) appears to be white noise. Further, the unemployment rate has a very high coherency at the business cycle frequencies with unemployment insurance but far smaller coherency with other transfer payments. Finally, the paper finds a moderate degree of direct substitutability between certain types of government spending and private consumption and in the process illustrates how spectral techniques can be readily combined with a standard intertemporal optimizing model.

JEL Classification: H3, H5

Suggested Citation

Cohen, Darrel S., An Analysis of Government Spending in the Frequency Domain (June 21, 1999). FEDS Working Paper No. 99-26. Available at SSRN: https://ssrn.com/abstract=171831 or http://dx.doi.org/10.2139/ssrn.171831

Darrel S. Cohen (Contact Author)

Federal Reserve Board - Division of Research and Statistics

Washington, DC 20551
United States
202-452-2376 (Phone)
202-452-3819 (Fax)

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