Chronicle of a war foretold: the macroeconomic effects of anticipated defense spending shocks

We identify news shocks to U.S. defense spending as the shocks that best explain future movements in defense spending over a five-year horizon and are orthogonal to current defense spending. Our identi ed shocks, though correlated with the Ramey (2011) news shocks, explain a larger share of macroeconomic uctuations and produce signi cant demand efects. News about increases in defense spending induces signi - cant and persistent increases in output, hours worked, in ation and the interest rate, and signi cant increases in investment, consumption and the excess returns of defense contractors on impact