Why Does GDP Move Before G? It's all in the Measurement
Abstract
We find that the early impact of defense news shocks on GDP is mainly due to a rise in business inventories, as contractors ramp up production for new defense contracts. These contracts do not affect government spending (G) until payment-on-delivery, which occurs 2-3 quarters later. Novel data on defense procurement obligations reveals that contract awards Granger-cause VAR-identified shocks to G, but not defense news shocks. This implies that the early GDP response relative to G is largely driven by the delayed accounting of defense contracts, while VAR-identified shocks to G miss the impact on inventories, resulting in lower multiplier estimates.
Keywords
Cite
@article{arxiv.2212.06073,
title = {Why Does GDP Move Before G? It's all in the Measurement},
author = {Edoardo Briganti and Victor Sellemi},
journal= {arXiv preprint arXiv:2212.06073},
year = {2023}
}
Comments
There are fundamental unclear explanations of the multiplier breakdown which causes great confusion among researchers interested in fiscal policy. The error is in the section before the conclusion