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:	2004-01-23
Authors:	Galí, Jordi ; López-Salidoz, J. David ; Vallés, Javier
Institutions:	Center for Financial Studies
Subject:	Rule-of-Thumb Consumers \| Fiscal Multiplier \| Government Spending \| Taylor Rules

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Extent:	application/pdf
Series:	CFS Working Paper Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 2004/23 45 pages
Classification:	E32 - Business Fluctuations; Cycles ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005600446