Effects of government spending on consumption Dynamics

Wisdom Takumah

MPRA Paper from University Library of Munich, Germany

Abstract: The effects of fiscal policy on the economy is increasingly popular in the literature of empirical macroeconomics and factor-augmented vector autoregressive (FAVAR) models have become a popular tool in explaining how economic variables interact over time. This paper focused on the effect of fiscal policy on aggregate and disaggregated consumption by applying the factor-augmented vector Autoregression (FAVAR) model. The study estimated the FAVAR model using the computationally simpler principal component method. I found that government spending shock increases aggregate consumption; and there exists heterogeneity within durable, nondurable, and service consumption variables.

Keywords: FAVAR model; Fiscal Policy; Government Spending Shocks; Aggregate Consumption (search for similar items in EconPapers)
JEL-codes: E21 E27 E62 H50 (search for similar items in EconPapers)
Date: 2021-05-03, Revised 2021-07-09
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109171

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