The output, employment, and interest rate effects of government consumption

S. Aiyagari, Lawrence Christiano and Martin Eichenbaum

No 25, Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis

Abstract: This paper investigates the impact of aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change. We also show that, in principle, there can be an analog to the Keynesian multiplier in the neoclassical growth model. Finally, in an empirically plausible version of the model, we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one. Our results provide counterexamples to existing claims in the literature.

Keywords: Expenditures, Public; Employment (Economic theory); Interest rates (search for similar items in EconPapers)
Date: 1990
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Citations: View citations in EconPapers (31)

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Related works:
Journal Article: The output, employment, and interest rate effects of government consumption (1992)
Working Paper: The output, employment, and interest rate effects of government consumption (1990)
Working Paper: The output, employment, and interest rate effects of government consumption (1990)
Working Paper: The Output, Employment, and Interest Rate Effects of Government Consumption (1990)
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