Episodes of War and Peace in an Estimated Open Economy Model

GATE WP 1708 – February 2017

47 Pages Posted: 14 Feb 2017

See all articles by Stéphane Auray

Stéphane Auray

CREST-Ensai

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: February 14, 2017

Abstract

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

Auray, Stéphane and Eyquem, Aurélien, Episodes of War and Peace in an Estimated Open Economy Model (February 14, 2017). GATE WP 1708 – February 2017. Available at SSRN: https://ssrn.com/abstract=2916691 or http://dx.doi.org/10.2139/ssrn.2916691

Stéphane Auray (Contact Author)

CREST-Ensai ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Aurélien Eyquem

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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