Understanding the Effects of Government Spending on Consumption

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ID: 291385
2007
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Abstract
Recent evidence suggests that consumption rises in response to an increase in government spending. That finding 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 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.
Reference Key
openalex_W2149530077 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Jordi Galı́, J. David López‐Salido, Javier Vallés
Journal journal of the european economic association
Year 2007
DOI
10.1162/jeea.2007.5.1.227
URL
Keywords Keywords not found

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