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.

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Year of publication:	2004
Authors:	Galí, Jordi ; López-Salido, J. David ; Vallés, Javier
Publisher:	European Central Bank
Subject:	Geldpolitik \| Monetary Policy \| Zentralbank \| Central Bank

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Extent:	972800 bytes 54 p. application/pdf
Series:	Working paper series / European Central Bank ; 339
Type of publication:	Book / Working Paper
Language:	English
Classification:	E32 - Business Fluctuations; Cycles ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation ; Currency. Monetary policy ; Individual Working Papers, Preprints
Source:	ArchiDok

Persistent link: https://www.econbiz.de/10009639393