Understanding the effects of government spending on consumption

Jordi Gali (), López-Salido, J. David () and Javier Vallés ()
Additional contact information
López-Salido, J. David: Banco de España, Alcala 50, E-28014 Madrid, Spain., http://www.bde.es/homee.htm
Javier Vallés: Banco de España, Alcala 50, E-28014 Madrid, Spain., http://www.bde.es/homee.htm

No 339, Working Paper Series from European Central Bank

Abstract: 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.

Keywords: rule-of-thumb consumers; fiscal multiplier; government spending; Taylor rules. (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-pbe
Date: 2004-04
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http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp339.pdf (application/pdf)

Related works:
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Working Paper: Understanding the Effects of Government Spending on Consumption (2004)
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Working Paper: Understanding the effects of government spending on consumption (2004)
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Journal Article: Understanding the Effects of Government Spending on Consumption (2007)
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