This paper investigates how expectations about future government spending affect the transmission of fiscal policy shocks. We study the effects of two different types of government spending shocks in the United States: (i) spending shocks that are accompanied by an expected reversal of public spending growth below trend; (ii) spending shocks that are accompanied by expectations of future spending growth above trend. We use the Ramey (2011)’s time series of military build-ups to measure exogenous spending shocks, and deviations of forecasts of public spending with respect to past trends, evaluated in real-time, to distinguish shocks into these two categories. Based on a structural VAR analysis, our results suggest that shocks associated with an expected spending reversal exert expansionary effects on the economy and accelerate the correction of the initial increase in public debt. Shocks associated with expected spending growth above trend, instead, are characterized by a contraction in aggregate demand and a more persistent increase in public debt. The main channel of transmission seems to run through agents’ perception of the future macroeconomic environment.
This paper studies the relationship between civil war and HIV/AIDS in Burundi. It contributes to the empirical literature by providing micro level evidence using an identification strategy based on original data on the dynamics of rebel movements. The presence of exit and entry points from and to rebel safe havens is used to generate exogenous variation in conflict intensity. These points are plausibly assumed to serve as starting or end points for rebel attack, but are not directly related to HIV/AIDS or correlated with unobservables. The case of Burundi provides fruitful grounds of analysis, as seroprevalence rates are heterogeneous across the country, the serological and conflict data for Burundi is of good quality and conclusions are likely to serve as valuable insights in Burundi and other fragile countries with similar HIV/AIDS policy agendas. OLS, instrumental variable and binary response model results indicate that within provinces in Burundi there is no clear-cut relationship between local conflict intensity and seroprevalence, condom knowledge and use, knowledge of test opportunities and actual test taking, or rape. Findings suggest that although HIV/AIDS is a general development priority, it is not as urgent a post-conflict priority as commonly assumed.
This paper reconsiders the long term effect of fiscal policy on interest rates using a real-time dataset of macroeconomic and fiscal variables in a panel of 17 OECD countries over the period 1989-2009. We show that, after controlling for cross sectional dependence using a Factor Augmented Panel, interest rates are mostly related to global factors. Among domestic fiscal variables, the level of expected public debt mantains a positive correlation with interest rates, while among the global factors, the aggregate monetary and fiscal stance play a quantitatively sizeable role. We then analyze how impulses from the aggregate fiscal stance influence each country's interest rates. We find that these effects are modest in large economies and particularly strong in economies characterized by low initial financial integration, leading the way to a novel interpretation of the divergent behaviour of interest rates in the recent financial crisis.
The National Monetary Commission was deeply concerned with importing best practice. One important focus was the connection between the money market and international trade. It was said that Britain’s lead in the market for “acceptances” originating in international trade was the basis of its sterling predominance. In this article, we use a so-far unexplored source to document the portfolio of bills that was brought up to the Bank of England for discount and study the behavior of the Bank of England during the crisis of 1866 (the so-called Overend- Gurney panic) when the Bank began adopting lending of last resort policies (Bignon, Flandreau and Ugolini 2011). We compare 1865 (a “normal” year) to 1866. Important findings include: (a) the statistical predominance of foreign bills in the material brought to the Bank of England; (b) the correlation between the geography of bills and British trade patterns; (c) a marked contrast between normal times lending and crisis lending in that main financial intermediaries and the “shadow banking system” only showed up at the Bank’s window during crises; (d) the importance of money market investors (bills brokers) as chief conduit of liquidity provision in crisis; (e) the importance of Bank of England’s supervisory policies in ensuring lending-of-lastresort operations without enhancing moral hazard. An implication of our findings is that Bank of England’s ability to control moral hazard for financial intermediaries involved in acceptances was another reason for the rise of sterling as an international currency.
Height-for-age (HA) and weight-for-age (WA) of children are standard measures to study the determinants of stunting and short-term underweight. Rather than studying these indicators separately, this paper looks at their interaction and therefore at the dynamics of height and weight. Considering HA a child's health stock and WA nutritional investment, we develop an overlapping generations model. The main features of the model are self-productivity of health stocks and the dynamic complementarity between past health stocks and contemporaneous nutrition. We test the model's predictions on a Senegalese panel of 305 children between 0 and 5 years over three periods. To control for endogeneity and serial correlation we employ different GMM methods. We find evidence of self- productive health stocks and that child health produced at one stage raises the productivity of nutritional inputs at subsequent stages. Our results indicate that child health is quickly depleted and needs constant updating. Simulations based on our estimates show that a positive nutritional shock during the first six months of life is essentially depleted at the age of 2. Consequently, sustainable development and nutrition programs have to be long-term and yield higher returns if they reach babies in the early months of infancy.
