Identifying Government Spending Shocks: It's all in the Timing

Valerie Ramey

The Quarterly Journal of Economics, 2011, vol. 126, issue 1, 1-50

Abstract: Standard vector autoregression (VAR) identification methods find that government spending raises consumption and real wages; the Ramey--Shapiro narrative approach finds the opposite. I show that a key difference in the approaches is the timing. Both professional forecasts and the narrative approach shocks Granger-cause the VAR shocks, implying that these shocks are missing the timing of the news. Motivated by the importance of measuring anticipations, I use a narrative method to construct richer government spending news variables from 1939 to 2008. The implied government spending multipliers range from 0.6 to 1.2. Copyright 2011, Oxford University Press.

Date: 2011
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Working Paper: Identifying Government Spending Shocks: It's All in the Timing (2009)
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