NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Understanding the Effects of Government Spending on Consumption

Jordi Galí, J. David López-Salido, Javier Vallés

NBER Working Paper No. 11578
Issued in August 2005
NBER Program(s):   EFG

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.

download in pdf format
   (568 K)

email paper

This paper is available as PDF (568 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11578

Published:

Users who downloaded this paper also downloaded these:
Gali, David Lopez-Salido, and Valles w10392 Rule-of-Thumb Consumers and the Design of Interest Rate Rules
Blanchard and Perotti w7269 An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output
Christiano, Eichenbaum, and Rebelo w15394 When is the government spending multiplier large?
Ravn, Schmitt-Grohe, and Uribe w13328 Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate
Ramey w15464 Identifying Government Spending Shocks: It's All in the Timing
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us