The LU-EAGLE model with disaggregated public expenditure

Pablo Garcia Sanchez and Alban Moura

No 135, BCL working papers from Central Bank of Luxembourg

Abstract: We augment the original LU-EAGLE model with disaggregated public expenditure, allowing for (i) a distinction between public consumption and investment expenditures, (ii) complementarity between public and private consumption, (iii) a productive role for public capital, and (iv) separate private and public employment. This extended model embeds a wide range of transmission channels from public expenditures and allows for a detailed analysis of the general-equilibrium effects of public demand in Luxembourg. Model simulations suggest that a rise in public employment induces the strongest GDP response in the short run, while a rise in public investment has the largest effects in the long run. The results also indicate that crowding-out effects through changes in net exports are essential in determining fiscal multipliers for small open economies such as Luxembourg.

Keywords: DSGE models; open economy models; fiscal policy; Luxembourg (search for similar items in EconPapers)
JEL-codes: C54 E17 E32 E37 E62 F47 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-11
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp135

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