NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Macroeconomic Frameworks

Alan J. Auerbach, Yuriy Gorodnichenko, Daniel Murphy

NBER Working Paper No. 26365
Issued in October 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, The Monetary Economics Program

We link detailed data on defense spending, wages, hours, employment, establishments, and GDP across U.S. cities to study the effects of fiscal stimulus. Our small-open-economy empirical setting permits us to estimate key macroeconomic outcomes and elasticities, including the responses of the labor share and the labor wedge to demand shocks and the elasticity of output with respect to labor inputs. We also decompose changes in work hours into different margins (hours per worker, the employment rate, and the labor force) and examine effects on local rental prices, wages, and firm entry. We compare our findings with the predictions of macroeconomic models and propose modifications to existing theory that can accommodate our findings.

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Document Object Identifier (DOI): 10.3386/w26365

 
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