Measuring the Impact of Military Spending: How Far Does a DSGE Model Deviate from Reality?
| Autor: | Yi-Hua Wu, Chih-Chin Ho, Eric S. Lin |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Inflation
Consumption (economics) Economics and Econometrics media_common.quotation_subject 05 social sciences Interest rate Bayesian vector autoregression Shock (economics) Economy Real gross domestic product 0502 economics and business Dynamic stochastic general equilibrium Econometrics Economics Per capita 050207 economics Social Sciences (miscellaneous) 050205 econometrics media_common |
| Zdroj: | Defence and Peace Economics. 28:585-608 |
| ISSN: | 1476-8267 1024-2694 |
| DOI: | 10.1080/10242694.2016.1228260 |
| Popis: | Dunne, Smith, and Willenbockel (2005) argue that the mainstream growth literature has not found military spending to be a significant determinant of economic growth, yet much of the defense economics literature has noted significant effects. This paper revisits this issue by using a DSGE-VAR approach, combining both theoretical and empirical methods. We present that the DSGE approach (estimated with the Bayesian technique) and the Bayesian VAR with the Minnesota Prior both lead to worse in-sample fit than our proposed DSGE-VAR framework. The DSGE-VAR approach reveals that a positive military spending shock boosts the U.S. economy, increasing per capita real GDP growth, consumption, inflation and interest rate. Our results are robust to alternative model specifications. Future investigations such as exploring an optimal military spending policy could adopt the approach in this paper to determine the best model – empirical, theoretical, or a combination of the two. |
| Databáze: | OpenAIRE |
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