Understanding the effects of government spending on consumption

Jordi Gali (), David López-Salido and Javier Valles

No 805, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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: Consumption (Economics); Government spending policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2004
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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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