Resource title

Understanding the effects of government spending on consumption

Resource image

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Resource description

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 existing evidence on the effects of government spending.

Resource author

Jordi Galí, Javier Vallés, Alexander L. Wolman

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25444

Resource license

Adapt according to the presented license agreement and reference the original author.