Government Purchases and Real Interest Rates

N. Gregory Mankiw

Journal of Political Economy, 1987, vol. 95, issue 2, 407-19

Abstract: This paper examines the dynamic impact of government purchases in a simple general equilibrium model with both durable and nondurable consumer goods as well as productive capital. The model generates perhaps surprising results. In particular, increases in government purchases are shown to cause reductions in real interest rates. The model thus provides a possible explanation for the observed behavior of real interest rates around wars. Copyright 1987 by University of Chicago Press.

Date: 1987
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