Anticipation Effects in Fiscal

Transcription

1 Anicipaion Effecs in Fiscal

2 Ramey QJE (211)

3 Defense Spending During Korean War Defense Spending During Vienam War VAR Shocks During Korean War VAR Shocks During Vienam War Business Week Defense Forecass Business Week Defense Forecass fiscal year acual Aug 5 forecas Jun 5 forecas Sep 5 forecas fiscal year acual Aug 65 forecas Jan 67 forecas Jan 65 forecas Sep 66 forecas May 67 forecas

4 Defense Spending During Carer-Reagan Defense Spending During 9/ VAR Shocks During Carer-Reagan VAR Shocks During 9/ OMB Defense Forecass OMB Defense Forecass fiscal year acual Jan. 198 forecas Oc forecas Jan forecas Jan forecas acual Feb. 22 forecas Feb. 24 forecas Apr. 21 forecas Feb. 23 forecas

5 Are VAR shocks anicipaed? Yes. Hypohesis Tess p-value in parenhesis Do War daes Granger-cause VAR shocks? Yes (.17) Do one- ahead Professional Forecass Granger-cause VAR shocks? 1981:3 28:4 Do four- ahead Professional Forecass Granger-cause VAR shocks? 1981:3 28:4 Yes (.25) Yes (.16) Do VAR shocks Granger-cause War daes? No (.148)

6 Model ln ln.28,.25ln.18ln 1.4ln consan ln.8, ln.95 ln.1, ln.95 ln.23) (1 1 ) log(1 ) log( ) ( eg e ez GF G eg GF GF GF GF e ez Z Z K I K G I C Y N C U K N Z Y

7 cg ig wg gg yg ng Theoreical Effec of an Increase in Governmen Spending (announced wo s in advance) governmen spending gdp hours consumpion invesmen real wages

8 Esimaion of VARs on Simulaed Daa Acual Spending Idenificaion in op row; News in boom row 68% bands governmen spending gdp hours governmen spending news gdp hours

9 Esimaion of VARs on Simulaed Daa Acual Spending Idenificaion in op row; News in boom row 68% bands consumpion invesmen real wages consumpion invesmen real wages

10 A New Measure of Defense Shocks The simple dummy variable incorporaes only a small par of he informaion available in he narraive record. Thus, I creaed a new variable: he presen discouned value of he forecased changes in defense-relaed spending. This is wha maers for he wealh effec. I creaed he variable by reading mosly Business Week, bu also he New York Times, Washingon Pos, and Wall Sree Journal from January 1939 o December 28.

11 Business Week 5/25/4, p. 6: The German drive o he English Channel his week assured quick adopion of he Presiden s program o speed up war preparaions. Bu he proposed expendiure of less han $3.5 billion in he coming fiscal year is only a small beginning; of ha, business men can now be cerain In he 1919 fiscal year coss ran o $11 billion. A major war effor in he 4s would come higher since we have sared six years behind, a vas oulay is required if we are o aain miliary pariy wih Hiler s indusrial machine. In a major war a leas four imes he $3.5 billion we plan o spend in 1941 would be needed, and quie conceivably five o six imes ha or anywhere from 2% o 3% of he peaceime naional income. However, i is no possible o jump immediaely up from a $3.5 billion o a $14 billion miliary effor. I akes ime o shif a naion from a peace economy o a warpreparaion economy and hence o a war economy. Righ now we are a he very beginnings of a war-preparaion economy.

12 Business Week 1/25/41: Expec dramaic developmens in he defense program in he nex few weeks. Plans were under way before he Kearny inciden and he sinking of wo more American ships bu hey have been speeded by his week s shocks and by he hearening repors on Russia s capaciy o hold ou, brough home by he Harriman mission. Beginning his week, war producion and i s war, no defense -becomes he No. 1 iem on he business docke. p. 7 Already, Washingon is aking cognizance of he imminence of a shooing war A year ago, he governmen hough of armamen expendiures of $1 billion a year; six monhs ago he goal was $24 billion; as recenly as las monh $36 billion was regarded as a desirable bu hard-o-achieve oulay; bu now an annual expendiure of $5 billion is begin seriously discussed no as he desirable goal, bu as an inescapable necessiy. p. 13

13 Defense News: PDV of Expeced Change in Spending as a % of lagged GDP year

14 Framework for Defense News VAR X A( L) X 1 U X includes: defense news variable (as a % of lagged GDP), oal gov spending, GDP, Barro-Redlick ax rae, 3-monh T-bill rae 6 h variable is roaed in. Newly consruced Quarerly daa: 1939:1 28:4, 4 lags, quadraic rend

15 VAR wih Defense News Variable: (red lines: 68%; green lines: 95%) governmen spending gdp oal hours manufacuring wage 3 monh Tbill rae average marginal income ax rae

16 VAR wih Defense News Variable: (red lines: 68%; green lines: 95%) real baa bond rae nondurable consumpion services consumpion consumer durable purchases nonresidenial invesmen residenial invesmen

17 Romer-Romer AER (21)

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22 Merens-Ravn AEJ:Policy 212

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26 Lorenz Kueng TAX NEWS Idenifying he Household Consumpion Response o Tax Expecaions using Municipal Bond Prices Download [pdf] Alhough heoreical models ofen emphasize fiscal foresigh, mos empirical sudies neglec he role of news, hereby underesimaing he oal effec of ax changes. Measuring he pah of expeced fuure ax raes from he yield spread beween axable and ax-exemp bonds, his paper finds ha consumpion of high-income households increases by close o 1% in response o news of a 1% increase in expeced afer-ax lifeime income, consisen wih he basic raional-expecaions life-cycle heory. Using novel high-frequency bond daa, I develop a model of he erm srucure of municipal yield spreads as a funcion of fuure op income ax raes and a risk premium. Tesing he model using he presidenial elecions of 1992 and 2 as wo naural experimens, his paper shows ha financial markes forecas fuure ax raes remarkably well in boh he shor and long run. Combining hese marke-based ax expecaions wih consumpion daa from he Consumer Expendiure Survey shows ha households who have lower income, less educaion, or are more credi consrained respond less o news. However, he same households also respond one-for-one wih large news shocks, consisen wih raional inaenion. Overall, he resuls in his paper sugges ha ignoring anicipaion effecs biases esimaes of he effec of fiscal policy downward. hps://sies.google.com/sie/lorenzkueng/

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