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ID:
095043
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| Publication |
2010.
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| Summary/Abstract |
Empirical evidence on the effect of defense spending on US output is at best mixed. Against this backdrop, this paper assesses the impact of a positive defense spending shock on the growth rate of real GNP using a Factor Augmented Vector Autoregressive (FAVAR) model estimated with 116 variables spanning the quarterly period of 1976:01 to 2005:02. Overall, the results show that a positive shock to the growth rate of the real defense spending translates to a positive short-run effect on the growth rate of real GNP lasting up to ten quarters, but the effect is significant only for two quarters. Beyond the tenth quarter, the effect becomes negative and shows signs of slow reversal at around the 17th quarter. Our results tend to indicate that the mixed empirical evidence, based on small-scale Vector Autoregressive (VAR) and Vector Error Correction (VEC) models, could be a result of a small information set not capturing the true theoretical relationships between the two variables of interest.
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| 2 |
ID:
168353
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| Summary/Abstract |
This paper explores the price rigidity in China using 259 monthly domestic and foreign macroeconomic time series. A factor-augmented vector autoregressive (FAVAR) model expanded with global components is employed. Three findings are obtained. First, the model shows that common components at home and abroad are the main driving force of price volatility; for price persistence, however, it is the global components that play a major role. Second, there is no clear evidence to show that the price stickiness in China is subject to urban-rural disparities. Last, we observe a relatively active price volatility and high persistence after the 2008 financial crisis, in which domestic components have increasingly significant impacts.
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