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, David ; Vallés, Javier
Publisher:	Frankfurt a. M. : European Central Bank (ECB)
Subject:	fiscal multiplier \| government spending \| rule-of-thumb consumers \| Taylor rules

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Series:	ECB Working Paper ; 339
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	390777749 [GVK] hdl:10419/152773 [Handle] RePEc:ecb:ecbwps:20040339 [RePEc]
Classification:	E32 - Business Fluctuations; Cycles ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
Source:	EconStor

Persistent link: https://www.econbiz.de/10011604385