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Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison

Anna Kormilitsina and Sarah Zubairy ()

Journal of Money, Credit and Banking, 2018, vol. 50, issue 7, 1571-1616

Abstract: The inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures, observed in many empirical studies, has stimulated the development of alternative theories of government spending shocks. Using the Bayesian approach, we evaluate the quantitative performance of five extant models, and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model. Moreover, we find that consumption decreases in all estimated models in response to a rise in government spending.

Date: 2018
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https://doi.org/10.1111/jmcb.12555

Related works:
Working Paper: Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison (2016) Downloads
Working Paper: Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison (2015) Downloads
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Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

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