TY  - JOUR
AU  - Ramey,Valerie A.
AU  - Shapiro,Matthew D.
TI  - Costly Capital Reallocation and the Effects of Government Spending
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6283
PY  - 1999
Y2  - April 1999
UR  - http://www.nber.org/papers/w6283
L1  - http://www.nber.org/papers/w6283.pdf
N1  - Author contact info:
Valerie A. Ramey
Department of Economics, 0508
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
Tel: 858/534-2388
Fax: 858/534-7040
E-Mail: VRAMEY@UCSD.EDU

Matthew D. Shapiro
Department of Economics
University of Michigan
611 Tappan St
Ann Arbor, MI 48109-1220
Tel: 734/764-5419
Fax: 734 764-2769
E-Mail: shapiro@umich.edu
AB  - Changes in government spending often lead to significant shifts in demand across sectors.  This paper analyzes the effects of sector-specific changes in government spending in a two-sector dynamic general equilibrium model in which the reallocation of capital across sectors is costly.  The two-sector model leads to a richer array of possible responses of aggregate variables than the one-sector model.  The empirical part of the paper estimates the effects of military buildups on a variety of macroeconomic variables using a new measure of military shocks.  The behavior of macroeconomic aggregates is consistent with the predictions of a multi-sector neoclassical model.  In particular, consumption, real product wages and manufacturing productivity fall in response to exogenous military buildups in the post-World War II United States.
ER  -