TY  - JOUR
AU  - Galí,Jordi
AU  - López-Salido,J. David
AU  - Vallés,Javier
TI  - Understanding the Effects of Government Spending on Consumption
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11578
PY  - 2005
Y2  - August 2005
UR  - http://www.nber.org/papers/w11578
L1  - http://www.nber.org/papers/w11578.pdf
N1  - Author contact info:
Jordi Gali
Centre de Recerca en Economia Internacional (CREI)
Ramon Trias Fargas 25
08005 Barcelona
SPAIN
Tel: 011-34-93-5422754
Fax: 011-34-93-5421860
E-Mail: jgali@crei.cat

David Lopez-Salido
Federal Reserve Board
20th and C Streets, N.W.
Washington, DC 20551
Tel: 202 452 2566
E-Mail: david.j.lopez-salido@frb.gov

Javier Valles
Research Dept.
Banco de Espana
Alcala 50
28014 Madrid SPAIN
E-Mail: valles@bde.es
AB  - 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.
ER  -