The dynamic effects of government spending shocks on employment and work hours

Wenli Li and Mingwei Yuan

No 98-09, Working Paper from Federal Reserve Bank of Richmond

Abstract: In this paper, we analyze the dynamic behavior of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers. The model is estimated for the U.S. using the Generalized Methods of Moments (GMM) estimation technique. An increase in government spending raises hours worked per worker, and crowds out private consumption due to a negative wealth effect. On the path converging towards the steady state, private consumption is below its long run average and increases, which implies that the interest rate is above its long run average and declines. The interest rate effect dominates the pure economic rent effect on the capital value of a hired worker to the firm, causing a reduction of job openings and consequently a decrease in employment. These results are contrasted with the predictions of a version of Burnside, Eichenbaum and Rebelo's (1993) labor hoarding model.

Keywords: Employment; Expenditures, Public; Econometric models (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.richmondfed.org/publications/research/working_papers/1998/wp_98-9.cfm (text/html)
https://www.richmondfed.org/-/media/RichmondFedOrg ... /1998/pdf/wp98-9.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedrwp:98-09

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().