Download this Paper Open PDF in Browser

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

47 Pages Posted: 7 Aug 2007 Last revised: 10 Aug 2010

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)

Date Written: April 1990

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.

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: https://ssrn.com/abstract=468836

S. Rao Aiyagari

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

Paper statistics

Downloads
23
Abstract Views
461