Macroeconomic Frameworks: Reconciling Evidence and Model Predictions from Demand Shocks

Author:

Auerbach Alan J.1,Gorodnichenko Yuriy1,Murphy Daniel2

Affiliation:

1. University of California, Berkeley and NBER (email: )

2. Darden School of Business, University of Virginia (email: )

Abstract

How do demand shocks affect the economy? We exploit detailed data on US defense spending to examine a large set of outcome variables in response to well-identified local demand shocks, jointly examining new outcomes (e.g., firm entry and housing rents) and other key macroeconomic outcomes and elasticities that previously have been estimated separately or in settings with weaker identification. We find that government spending crowds in employment, firm entry, private consumption, and labor productivity while also increasing local housing rents. To reconcile the evidence with theory, we study a model of economic slack. (JEL E12, E21, E24, E25, H56, L11, R31)

Publisher

American Economic Association

Reference60 articles.

1. Evaluating the efficiency and equity of federal fiscal equalization

2. Measuring the Output Responses to Fiscal Policy

3. Local Fiscal Multipliers and Fiscal Spillovers in the USA

4. Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy

5. Auerbach, Alan J., Yuriy Gorodnichenko, and Daniel Murphy. 2024. "Replication data for: Macroeconomic Frameworks: Reconciling Evidence and Model Predictions from Demand Shocks." American Economic Association, Inter-university Consortium for Political and Social Research. https:// doi.org/10.3886/E185481V1.

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