We have updated our working paper, “Industry Evidence on the Effects of Government Spending.” Using a slightly different instrument for government demand, we now find that an increase in government demand raises output and hours but lowers real product wages and productivity, consistent with the neoclassical model of government spending.
Tag Archive for 'industry'
Valerie Ramey and I have posted a draft of our new working paper, “Industry Evidence on the Effects of Government Spending,” which we will be presenting at the AEA meetings this weekend. In it we study how industry-level government spending effects output, hours, wages, and productivity.
This paper investigates industry-level effects of government purchases in order to shed light on the transmission mechanism for government spending on the aggregate economy. We begin by highlighting the different theoretical predictions concerning the effects of government spending on industry labor market equilibrium. We then create a panel data set that matches output and labor variables to shifts in industry-specific government demand. The empirical results indicate that increases in government demand raise output and hours, but have no effect on real product wages, even over a five-year horizon. Government demand also appears to raise productivity and markups when they are measured using gross output. These results are inconsistent with standard neoclassical and New Keynesian models of government spending.
You can download a copy of the paper from the link above or on my Research page.
Valerie and I will be presenting our paper “Industry Evidence on the Effects of Government Spending” at the 2010 AEA meetings on Monday, January 4th. Here is the information about the session:
Jan. 4, 2:30 pm, Atlanta Marriott Marquis, Marquis Ballroom – Salon D
AEA
Fiscal Stabilization Policy (E6)
Presiding: STEVEN DAVIS, University of Chicago
ROBERT BARRO, Harvard University, CHARLES REDLICK, Harvard University – Fiscal Multipliers
GARY BECKER, University of Chicago, KEVIN M. MURPHY, University of Chicago, ROBERT H. TOPEL, University of Chicago – Evaluating the Fiscal Stimulus
CHRISTOPHER J. NEKARDA, Federal Reserve Board, VALERIE A. RAMEY, University of California-San Diego – Industry Evidence on the Effects of Government Spending
MICHAEL WOODFORD, Columbia University – Simple Analytics of the Government Expenditure Multiplier
We have updated our paper “The Cyclicality of the Price-Cost Markup”. You can download the revised version directly here or on my research page.
Valerie Ramey and I have posted a draft of our new working paper, “The Cyclical Behavior of the Price-Cost Markup.” In it we present considerable evidence that markups are significantly procyclical, contrary to the stylized fact that markups are countercyclical.
Here is the abstract:
Countercyclical markups constitute the key transmission mechanism for monetary and other “demand” shocks in New Keynesian models. This paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost. The first part of the paper studies markups in the aggregate economy and the manufacturing sector. We use Bils’ (1987) insights for converting average cost to marginal cost, but do so with richer data. We find that all measures of markups are either procyclical or acyclical. Moreover, we show that monetary shocks lead markups to fall with output. The second part of the paper merges input-output information on shipments to the government with detailed industry data to study the effect of demand changes on industry-level markups. Industry-level markups are found to be decidedly procyclical in response to demand changes.
You can download a copy of the paper from the link above or on my Research page.