Understanding the effects of government spending on consumption

  • Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. JEL Klassifikation: E32, E62.

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Author:Jordi Galí, J. David López-Salidoz, Javier Vallés
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,23
Series (Serial Number):CFS working paper series (2004, 23)
Document Type:Working Paper
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Fiscal Multiplier; Government Spending; Rule-of-Thumb Consumers; Taylor Rules
GND Keyword:Privater Verbrauch; Öffentliche Ausgaben
Issue:This Draft: November 2003
First Draft: September 2002. This Draft: November 2003.
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht