The output, employment, and interest rate effects of government consumption
Abstract: This paper investigates the impact of aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change. We also show that, in principle, there can be an analog to the Keynesian multiplier in the neoclassical growth model. Finally, in an empirically plausible version of the model, we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one. Our results provide counterexamples to existing claims in the literature.
File(s): File format is application/pdf http://minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=24
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Discussion Paper / Institute for Empirical Macroeconomics
Publication Date: 1990