Does neoclassical theory account for the effects of big fiscal shocks? Evidence from World War II
Ellen R. McGrattan
Lee E. Ohanian
There is much debate about the usefulness of the neoclassical growth model for assessing the macro-
economic impact of fiscal shocks. We test the theory using data from World War II, which is by far
the largest fiscal shock in the history of the United States. We take observed changes in fiscal policy
during the war as inputs into a parameterized, dynamic general equilibrium model and compare the values of all variables in the model to the actual values of these variables in the data. Our main finding is that the theory quantitatively accounts for macroeconomic activity during this big fiscal
Economic history ; Fiscal policy ; Macroeconomics - Econometric models
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.