Understanding the effects of government spending on consumption

Jordi Galí, David López-Salido and Javier Valles

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. JEL Classification: E32, E62

Keywords: Fiscal multiplier; government spending; rule-of-thumb consumers; Taylor rules (search for similar items in EconPapers)
Date: 2004-04
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Citations: View citations in EconPapers (31)

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https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp339.pdf (application/pdf)

Related works:
Working Paper: Understanding the Effects of Government Spending on Consumption (2015)
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Working Paper: Understanding the Effects of Government Spending on Consumption (2005)
Working Paper: Understanding the effects of government spending on consumption (2004)
Journal Article: Understanding the effects of government spending on consumption (2003)
Working Paper: Understanding the effects of government spending on consumption (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2004339

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