This article studies the impact on aggregate economic activity of increases in defense purchases which are unrelated to other developments in the economy. The authors use empirical evidence to evaluate the predictions of several prominent models.

This article discusses the empirical performance of a widely used model of nominal rigidities: the Calvo model of sticky good prices. The authors argue that there is overwhelming evidence against this model. But this evidence is generated under three key assumptions: one, there is no lag between...