Understanding the Effects of Government Spending on Consumption

Understanding the Effects of Government Spending on Consumption Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models We extend the standard New Keynesian model to allo

  • Title: Understanding the Effects of Government Spending on Consumption
  • Author: Board of Governors of the Federal Reserve System
  • ISBN: null
  • Page: 286
  • Format: Kindle Edition
  • Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models We extend the standard New Keynesian model to allow for the presence of rule of thumb non Ricardian consumers We show how the interaction of the latter with sticky prices and deficit financing can account for the existinRecent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models We extend the standard New Keynesian model to allow for the presence of rule of thumb non Ricardian consumers We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.

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