Episodes of War and Peace in an Estimated Open Economy Model
GATE WP 1708 – February 2017
47 Pages Posted: 14 Feb 2017
Date Written: February 14, 2017
We analyze the effects of world wars on the macroeconomic dynamics of the U.S., France, Germany, and the UK, by means of an estimated open-economy model. The model allows wars to affect the economy through capital depreciation, sovereign default, a military draft, household preferences, and spillovers on other exogenous processes (productivity, investment, trade, policy variables). If the bulk of fluctuations during war episodes can be explained by the rise in government spending in the U.S., other factors are crucial in other countries. We also discuss the size and state-dependence of public spending multipliers, and a counterfactual welfare exercise.
Keywords: Fluctuations, War, Trade, Taxes, Public Debt, Bayesian estimations, Multipliers, Welfare
JEL Classification: E31, E32, E62, F41, H56, H63
Suggested Citation: Suggested Citation