Abstract

http://ssrn.com/abstract=468836
 


 



The Output, Employment, and Interest Rate Effects of Government Consumption


S. Rao Aiyagari


University of Rochester - William E. Simon Graduate School of Business Administration (Deceased)

Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Martin Eichenbaum


Northwestern University; National Bureau of Economic Research (NBER)

April 1990

NBER Working Paper No. w3330

Abstract:     
This paper investigates the impact on aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change. We also show that, in principle, there can be an analog to the Keynesian multiplier in the neoclassical growth model. Finally, in an empirically plausible version of the model, we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one. Our results provide counter examples to existing claims in the literature.

Number of Pages in PDF File: 47

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Date posted: August 7, 2007  

Suggested Citation

Aiyagari, S. Rao and Christiano, Lawrence J. and Eichenbaum, Martin, The Output, Employment, and Interest Rate Effects of Government Consumption (April 1990). NBER Working Paper No. w3330. Available at SSRN: http://ssrn.com/abstract=468836

Contact Information

S. Rao Aiyagari (deceased)
University of Rochester - William E. Simon Graduate School of Business Administration (Deceased)
N/A
Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Martin Eichenbaum
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8232 (Phone)
847-491-7001 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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