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| Author: | Gali, J. Valles, J. Lopez-Salido, J.D. |
| Title: | Understanding the effects of government spending on consumption |
| Journal: | Journal of the European Economic Association
2007 : MAR, VOL. 5:1, p. 227-270 |
| Index terms: | public expenditure consumption |
| Language: | eng |
| Abstract: | It is suggested by recent evidence that consumption rises in response to an increase in government spending (here as: gov-spdg.) which can not easily be reconciled with existing optimizing business cycle models. The standard new Keynesian model is extended to allow for the presence of rule-of-thumb consumers. It is shown how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on gov-spdg. effects. |
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