The effects of government spending shocks on consumption under optimal stabilization

Michal Horvath

European Economic Review, 2009, vol. 53, issue 7, 815-829

Abstract: Economic theory has yet to come up with a general guidance regarding the dynamic effects and welfare implications of shocks to public spending. With the aim to provide a theoretical benchmark, we analyse if a rise in private consumption following an exogenous rise in government spending is a feature of the economy under optimal stabilization in a standard New Keynesian setting augmented for the presence of liquidity-constrained agents and non-separable preferences. Our results provide little evidence in support of a crowding-in effect under 'timelessly optimal' policy.

Keywords: Consumption; Government; spending; Optimal; monetary; and; fiscal; policy; Non-separable; preferences; Non-Ricardian; agents (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:53:y:2009:i:7:p:815-829

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