Do shocks to government spending raise or lower consumption and real wages? Standard VAR identification approaches show a rise in these variables, whereas the Ramey-Shapiro narrative identification approach finds a fall. 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 the VAR shocks are missing the timing of the news. Simulations from a standard neoclassical model in which government spending is anticipated by several quarters demonstrate that VARs estimated with faulty timing can produce a rise in consumption even when it decreases in the model. Motivated by the importance of measuring anticipations, I construct two new variables that measure anticipations. The first is based on narrative evidence that is much richer than the Ramey-Shapiro military dates and covers 1939 to 2008. The second is from the Survey of Professional Forecasters, and covers the period 1969 to 2008. All news measures suggest that most components of consumption fall after a positive shock to government spending. The implied government spending multipliers range from 0.6 to 1.1.

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

Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication-mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication, can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. However, the large variation in communication, strategies across central banks suggests that a. consensus has yet to emerge, on what constitutes an optimal communication strategy.

/pdf/central-bank-communication-and-monetary-policy-a-survey-of-qnyqvbkzrj.pdf

Central bank communication and monetary policy: A survey of theory and evidence

We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting "modest" movements in short rates lead to "large" movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission. (JEL E31, E32, E43, E44, E52, G01)

/pdf/monetary-policy-surprises-credit-costs-and-economic-activity-3tt8ryynpg.pdf

Monetary Policy Surprises, Credit Costs, and Economic Activity †

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.

/pdf/identifying-government-spending-shocks-it-s-all-in-the-yavymo8vxb.pdf

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

COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach

We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.

/pdf/measuring-geopolitical-risk-2t8qm167ka.pdf

Measuring Geopolitical Risk

https://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1166.pdf

The Macroeconomic Impact of Financial and Uncertainty Shocks

ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers. Second, I estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies, and by employing a simple dynamic stochastic general equilibrium model. I document three findings for the U.S. for the period 1947-2010. First, the impact tax multiplier is close to 0. Second, the impact spending multiplier ranges between 0.35 and 1. Third, there is a large uncertainty in the estimates of fiscal multipliers at longer horizons. Yet, the probability that the spending multiplier is larger than the tax multiplier is above 0.65, for up to three years after policy interventions.

/pdf/the-analytics-of-svars-a-unified-framework-to-measure-fiscal-5dygx6sh6h.pdf

The Analytics of SVARs: A Unified Framework to Measure Fiscal Multipliers

In recent years VAR models have become the main econometric tool used to study the eects of …scal policy shocks. Yet, the literature has so far failed to provide ro- bust stylized facts and there is currently strong disagreement on even the qualitative response of key variables such as private consumption and employment to government spending shocks. We identify three aspects of existing empirical work which may be responsible for the absence of robust stylized facts: dierences in speci…cation of the reduced-form VAR model, dierences in identi…cation approaches and lack of compa- rability of the …scal policy experiments considered in the literature. In order to assess the importance of each of these aspects we estimate a common reduced-form VAR model using data for the U.S. economy. Our main result is that speci…cation issues and lack of comparability of policy experiments rather than dierences in identi…cation approaches explain the disagreement in the literature. In particular, all approaches yield the result that the response of private consumption to a spending shock follows a hump-shaped pattern and is signi…cantly positive in the medium run. Moreover, the results suggest that a spending increase stimulates the economy in the medium run irrespective of whether it is de…cit-…nanced or tax-…nanced. However, in the long run neither spending increases nor tax cuts have signi…cant output eects.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1102338_code485639.pdf?abstractid=1102338&mirid=1

What are the effects of fiscal policy shocks? A VAR-based comparative analysis

https://www.federalreserve.gov/econres/ifdp/files/ifdp1256.pdf

Dario Caldara

Papers

Measuring Geopolitical Risk

The Macroeconomic Impact of Financial and Uncertainty Shocks

The Analytics of SVARs: A Unified Framework to Measure Fiscal Multipliers

What are the effects of fiscal policy shocks? A VAR-based comparative analysis

The economic effects of trade policy uncertainty