Multipliers of unexpected increases in defense spending: an empirical investigation Articles uri icon

publication date

  • August 2015

start page

  • 205

end page

  • 226


  • 57

International Standard Serial Number (ISSN)

  • 0165-1889

Electronic International Standard Serial Number (EISSN)

  • 1879-1743


  • We show that unexpected increases in defense spending increase total factor productivity (TFP) and output and decrease investment in US quarterly data. Yet, the output multiplier is zero when the TFP response is shut down. We examine various explanations for this phenomenon and find that the rise in TFP is due to the presence of measurement error in quarterly data. Using artificial data generated from an RBC model with measurement error, we demonstrate the suitability of our identification approach for recovering the true output multiplier in the presence of measurement error.


  • Economics


  • defense spending; unanticipated defense shocks; total factor productivity