An open economy New-Keynesian model of government spending across U.S. regions

Davide Osti ()

MPRA Paper from University Library of Munich, Germany

Abstract: We attempt to replicate the New-Keynesian DSGE model presented in Nakamura and Steinsson (American Economic Review 2014) in order to study the effects of a government spending shock on output and other prominent macroeconomic variables, within a simplified two-region monetary union. Two different specifications for the utility function (separable and non-separable à la Greenwood, Hercowitz, and Huffman 1988) are adopted. Perfectly flexible capital markets detained by households are introduced at a regional level first, and then firm specific capital is assumed. After calibrating for the structural parameters, the model is linearly approximated around the steady states, and impulse response functions are derived and commented.

Keywords: open economy relative multiplier; leaning against the wind; Volcker - Greenspan monetary policy; fixed and nominal real interest rate,; military buildups (search for similar items in EconPapers)
JEL-codes: C61 E4 E6 E62 F2 (search for similar items in EconPapers)
Date: 2015-02-12
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:79895

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