NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Does the U.S. Government Finance Fiscal Shocks?

Antje Berndt, Hanno Lustig, Sevin Yeltekin

NBER Working Paper No. 16458
Issued in October 2010
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

We develop a method for identifying and quantifying the fiscal channels that help finance government spending shocks. We define fiscal shocks as surprises in defense spending and show that they are more precisely identified when defense stock data are used in addition to aggregate macroeconomic data. Our results show that in the postwar period, over 9% of the U.S. government's unanticipated spending needs were financed by a reduction in the market value of debt and more than 73% by an increase in primary surpluses. Additionally, we find that long-term debt is more effective at absorbing fiscal risk than short-term debt.

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Document Object Identifier (DOI): 10.3386/w16458

Published: Antje Berndt & Hanno Lustig & Sevin Yeltekin, 2012. "How Does the US Government Finance Fiscal Shocks?," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 69-104, January. citation courtesy of

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