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Article

Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy

1
Newcastle Business School, Northumbria University, Newcastle upon Tyne NE18ST, UK
2
Department of Political Science, University of Perugia, 06123 Perugia PG, Italy
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2019, 12(3), 141; https://doi.org/10.3390/jrfm12030141
Received: 8 August 2019 / Revised: 21 August 2019 / Accepted: 22 August 2019 / Published: 1 September 2019
(This article belongs to the Special Issue Bayesian Econometrics)
In this paper, we disentangle public spending components in order analyse their effects on the U.S. economy. Our Dynamic Stochastic General Equilibrium Model (DSGE) model includes both civilian and military expenditures. We take into account the changes in the effects of these public spending components before and after the structural break that occurred in the U.S. economy around 1980, namely financial liberalisation. Therefore, we estimate our model with Bayesian methods for two sample periods: 1954:3–1979:2 and 1983:1–2008:2. Our results suggest that total government spending has a positive effect on output, but it induces a fall in private consumption. Moreover, we find important differences between the effects of civilian and military spending. In the pre-1980 period, higher civilian spending induced a rise in private consumption, whereas military spending shocks systematically decreased it. Our findings indicate that civilian spending has a more positive impact on output than military expenditure. Our robustness analysis assesses the impact of public spending shocks under alternative monetary policy assumptions. View Full-Text
Keywords: military and civilian spending; DSGE model; fiscal policy; monetary policy; Bayesian estimation military and civilian spending; DSGE model; fiscal policy; monetary policy; Bayesian estimation
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MDPI and ACS Style

Lorusso, M.; Pieroni, L. Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy. J. Risk Financial Manag. 2019, 12, 141. https://doi.org/10.3390/jrfm12030141

AMA Style

Lorusso M, Pieroni L. Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy. Journal of Risk and Financial Management. 2019; 12(3):141. https://doi.org/10.3390/jrfm12030141

Chicago/Turabian Style

Lorusso, Marco, and Luca Pieroni. 2019. "Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy" Journal of Risk and Financial Management 12, no. 3: 141. https://doi.org/10.3390/jrfm12030141

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