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Big G

Gernot Müller, Ernesto Pasten () and Raphael Schoenle

No 202015, Working Papers from Federal Reserve Bank of Cleveland

Abstract: “Big G” typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular; that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation in spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark, aligning the model with the empirical evidence.

Keywords: Government Spending; Granularity; Sectoral Heterogeneity; Federal Procurement; Monetary Policy; Fiscal Policy Transmission (search for similar items in EconPapers)
JEL-codes: E32 E62 (search for similar items in EconPapers)
Pages: 92
Date: 2020-05-27
New Economics Papers: this item is included in nep-cta, nep-dge and nep-mac
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https://doi.org/10.26509/frbc-wp-202015 Full Text

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:88068

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DOI: 10.26509/frbc-wp-202015

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