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The aggregate Frisch elasticity is critical for the evaluation of the outcomes of alternative fiscal and monetary policies as well as of competing interpretations of important macroeconomic phenomena, but consensus about its magnitude remains elusive. The temporary government spending cuts initiated by a 2013 U.S. budget sequestration procedure had experiment-like features almost ideal for measuring that elasticity from the effects that that policy development induced on macroeconomic variables. The paper inspects those effects with a novel methodology that borrows its main elements from the “event study” and Business Cycle Accounting traditions. Its main finding is that studies that calibrate the aggregate Frisch elasticity to the budget sequestration evidence should favor values for that elasticity in the low end of the range of those that have been proposed as empirically plausible in the literature.
JEL Classification: E62, E65, H3, H5, J22.
