Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions / Emi Nakamura, Jón Steinsson.

Format:

Book

Author/Creator:

Nakamura, Emi.

Contributor:

National Bureau of Economic Research.

Steinsson, Jón.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17391.

NBER working paper series no. w17391

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Fiscal Stimulus in a Monetary Union

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

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.

Notes:

Print version record

September 2011.