Riots, Battles and Cycles

Stéphane Auray, Aurélien Eyquem and Jouneau-Sion, Frédéric
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Jouneau-Sion, Frédéric: EQUIPPE (EA 4018), Université Lille Nord de France

Cahiers de recherche from Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke

Abstract: This paper proposes a conceptual framework to investigate the impact of military conflicts on business cycles, as well as defense policies through enrolment mechanisms. Our framework is a variation of a Real Business Cycle model first proposed by Hercowitz and Sampson (1991) that admits explicit solutions. We extend and estimate the initial model on US data to account for specific shocks that destroy the stock of capital and that may be as large as desired. We consider two types of dynamics on the depreciation rate of capital: short-term shocks, that may be interpreted as riots and captured by a Moving Average specification, and mid-term shocks, that may be interpreted as wars and captured by a Markov Switching process. Destructions may be limited by publicly decided enrolment, which allows to question the goals defense policies should aim at. First our model reproduces usual business cycle facts. Second, it allows to characterize the macroeconomic dynamics after shocks on the depreciation rate of capital. Finally, it provides a simple framework to quantify the welfare effects of alternative (simple) defense technologies.

Keywords: military policy; Real Business Cycle model; random coefficient autoregressive model (search for similar items in EconPapers)
JEL-codes: E13 E32 H56 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-rmg
Date: 2009-01-10, Revised 2009-04-05
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http://pages.usherbrooke.ca/gredi/wpapers/GREDI-0901.pdf First version, 2009 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:shr:wpaper:09-01

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