 Adjustment Dynamics in the Euro Area - A Fresh Look at the Role of Fiscal Policy Using a DSGE ApproachG. Russell Kincaid No 322, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Abstract: Some researchers have recently introduced productive government investment spending into Dynamic stochastic general equilibrium (DSGE) models, adding a supply channel. This paper takes a similar perspective but it also introduces the government consumption good into the household utility function and this consumption good is supplied by a government production function. While higher government investment can increase private output and household consumption in the future, in the short run household utility is likely to decline because current consumption of private and government goods is shifted into investment and the supply of privately produced consumption goods is reduced. These considerations are especially relevant for euro-area members because fiscal policy is their only national macroeconomic policy tool. Keywords: Public investment; Public consumption; Government production function; DSGE models; Euro area; Adjustment Dynamics in the Euro Area; A Fresh Look at the Role of Fiscal Policy Using a DSGE Approach; Kincaid (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0322 Access Statistics for this paper More papers in European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC. |
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