TY  - JOUR
AU  - Nakamura,Emi
AU  - Steinsson,Jón
TI  - Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17391
PY  - 2011
Y2  - September 2011
UR  - http://www.nber.org/papers/w17391
L1  - http://www.nber.org/papers/w17391.pdf
N1  - Author contact info:
Emi Nakamura
Columbia Business School
3022 Broadway, Uris Hall 820
New York, NY 10027
Tel: 212/854-8162
E-Mail: enakamura@columbia.edu

Jón Steinsson
Department of Economics
Columbia University
1026 International Affairs Building
420 West 118th Street
New York, NY 10027
Tel: 212/854-3690
Fax: 212/854-8059
E-Mail: jsteinsson@columbia.edu
AB  - We use rich historical data on military procurement spending across U.S. regions to estimate the effects of government spending in a monetary union. Aggregate military build-ups and draw-downs have differential effects across regions. We use this variation to estimate an "open economy relative multiplier" of approximately 1.5. We develop a framework for interpreting this estimate and relating it to estimates of the standard closed economy aggregate multiplier. The closed economy aggregate multiplier is highly sensitive to how strongly aggregate monetary and tax policy "leans against the wind." In contrast, our open economy relative multiplier "differences out" these effects because different regions in the union share a common monetary and tax policy. Our estimates provide evidence in favor of models in which demand shocks can have large effects on output.
ER  -