Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-29T06:46:03.808Z Has data issue: false hasContentIssue false
  • English
  • Français

THE EFFECTS OF FISCAL SHOCKS IN A NEW KEYNESIAN MODEL WITH USEFUL GOVERNMENT SPENDING

Published online by Cambridge University Press:  22 May 2014

Francesca D'Auria
Francesca D'Auria*
Affiliation:
European Commission
*
Address correspondence to: Francesca D'Auria, European Commission, DG Economic and Financial Affairs, B-1049 Brussels, Belgium; e-mail: francesca.d'auria@ec.europa.eu.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper develops a medium-scale New Keynesian model where consumer preferences depend on government expenditures and public capital is productivity-enhancing in order to account for recent evidence on the effects of government spending shocks. Under plausible assumptions on the degree of complementarity between private and public expenditures and on the output elasticity of public spending and considering alternative monetary policy rules, the effects of fiscal shocks delivered by the model are in line with the evidence.

Keywords

Useful Government SpendingNew Keynesian ModelTaylor Rules
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Special Issue 6: Growth, Optimal Fiscal and Monetary Policy, and Financial Frictions , September 2015 , pp. 1380 - 1399
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Ai, Chunrong and Cassou, Steven P. (1995) A normative analysis of public capital. Applied Economics 27, 1201–1209.CrossRefGoogle Scholar
Amano, Robert A. and Wirjanto, Tony S. (1998) Government expenditures and the permanent income model. Review of Economic Dynamics 1, 719–730.CrossRefGoogle Scholar
Aschauer, David A. (1985) Fiscal policy and aggregate demand. American Economic Review 75, 117–127.Google Scholar
Aschauer, David A. (1989) Is public expenditure productive? Journal of Monetary Economics 23, 177–200.CrossRefGoogle Scholar
Bailey, Martin J. (1971) National Income and the Price Level. New York: McGraw-Hill.Google Scholar
Barro, Robert J. (1981) Output effects of government purchases. Journal of Political Economy 89, 1086–1121.CrossRefGoogle Scholar
Baxter, Marianne and King, Robert G. (1993) Fiscal policy in general equilibrium. American Economic Review 83, 315–334.Google Scholar
Benigno, Pierpaolo and Woodford, Michael (2004) Optimal Stabilization Policy When Wages and Prices Are Sticky: The Case of a Distorted Steady State. NBER working paper 10839.CrossRefGoogle Scholar
Blanchard, Olivier and Perotti, Roberto (2002) An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Quarterly Journal of Economics 117, 1329–1368.CrossRefGoogle Scholar
Burnside, Craig, Eichenbaum, Martin, and Fisher, Jonas D.M. (2004) Fiscal shocks and their consequences. Journal of Economic Theory 115, 89–117.CrossRefGoogle Scholar
Calvo, Guillermo A. (1983) Staggered pricing in a utility maximizing framework. Journal of Monetary Economics 12, 383–396.CrossRefGoogle Scholar
Chatterjee, Santanu and Ghosh, Sugata (2011) The dual nature of public goods and congestion: The role of fiscal policy revisited. Canadian Journal of Economics 44, 1471–1496.CrossRefGoogle Scholar
Clarida, Richard H., Galí, Jordi, and Gertler, Mark L. (2000) Monetary policy rules and macroeconomic stability: Evidence and some theory. Quarterly Journal of Economics 115, 147–180.CrossRefGoogle Scholar
Eberts, Randall W. (1986) Estimating the Contribution of Urban Public Infrastructure to Regional Growth. Working paper 8610, Federal Reserve Bank of Cleveland.CrossRefGoogle Scholar
Edelberg, Wendy, Eichenbaum, Martin, and Fisher, Jonas D.M. (1999) Understanding the effects of shocks to government purchases. Review of Economic Dynamics 2, 166–206.CrossRefGoogle Scholar
Erceg, Christopher J., Henderson, Dale W., and Levin, Andrew T. (2000) Optimal monetary policy with staggered wage and price contracts. Journal of Monetary Economics 46, 281–313.CrossRefGoogle Scholar
Evans, Paul and Karras, Georgios (1996) Private and government consumption with liquidity constraints. Journal of International Money and Finance 15, 255–266.CrossRefGoogle Scholar
Fatas, Antonio and Mihov, Ilian (2001) The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence. CEPR discussion paper 2760.Google Scholar
Galí, Jordi, Lopez-Salido, David, and Valles, Javier (2007) Understanding the effects of government spending on consumption. Journal of the European Economic Association 5, 227–270.CrossRefGoogle Scholar
Ireland, Peter N. (2000) Interest rates, inflation, and federal reserve policy since 1980. Journal of Money, Credit and Banking 32, 417–434.CrossRefGoogle Scholar
Karras, Georgios (1994) Government spending and private consumption: Some international evidence. Journal of Money, Credit and Banking 26, 9–22.CrossRefGoogle Scholar
Linnemann, Ludger (2004) Tax base and crowding-in effects of balanced budget fiscal policy. Scandinavian Journal of Economics 106, 273–297.CrossRefGoogle Scholar
Linnemann, Ludger and Schabert, Andreas (2004) Can fiscal spending stimulate private consumption? Economics Letters 82, 173–179.CrossRefGoogle Scholar
Ludvigson, Sidney C. (1996) The macroeconomic effects of government debt in a stochastic growth model. Journal of Monetary Economics 38, 25–45.CrossRefGoogle Scholar
Lynde, Catherine and Richmond, J. (1993) Public capital and total factor productivity. International Economic Review 34, 401–14.CrossRefGoogle Scholar
Marattin, Luigi and Salotti, Simone (2011) On the usefulness of government spending in the EU area. Journal of Socio-Economics 40, 780–795.CrossRefGoogle Scholar
McCulloch, J. Huston (1977) The Austrian theory of the marginal use and of ordinal marginal utility. Zeitschrift fü r Nationalökonomie 37, 249–280.CrossRefGoogle Scholar
Mountford, Andrew and Uhlig, Harald (2009) What are the effects of fiscal policy shocks? Journal of Applied Econometrics 24 (6), 960–992.CrossRefGoogle Scholar
Obuko, Masakatsu (2003) Intratemporal substitution between private and government consumption: The case of Japan. Economics Letters 79, 75–81.Google Scholar
Ramey, Valerie A. and Shapiro, Matthew D. (1998) Costly capital reallocation and the effect of government spending. Carnegie-Rochester Conference Series on Public Policy 48, 145–194.CrossRefGoogle Scholar
Taylor, John B. (1993) Discretion versus policy rules in practice. Carnegie-Rochester Conferences Series on Public Policy 39, 195–214.CrossRefGoogle Scholar
Turnovsky, Stephen J. (1997) Fiscal policy in a growing economy with public capital. Macroeconomic Dynamics 1, 615–639.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2000) Fiscal policy, elastic labour supply and endogenous growth. Journal of Monetary Economics 45, 185–210.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2004) The transitional dynamics of fiscal policy: Long-run capital accumulation and growth. Journal of Money, Credit and Banking 36, 883–910.CrossRefGoogle Scholar
Yun, Tack (1996) Nominal price rigidity, money supply endogeneity and business cycles. Journal of Monetary Economics 37, 345–370.CrossRefGoogle Scholar