Cyclical Effects of the Composition of Government Purchases

38 Pages Posted: 15 Feb 2006

See all articles by Jahangir Aziz

Jahangir Aziz

International Monetary Fund (IMF) - Asia and Pacific Department

Luc Leruth

International Monetary Fund (IMF)

Date Written: February 1997

Abstract

This paper constructs a general equilibrium model with monopolistically competitive firms and endogenous markups where government spending consists of both consumption and investment goods. It is shown that when markups are countercyclical, increases in the share of investment goods in aggregate government expenditure entail a trade-off between greater long- run efficiency and higher short-run volatility. Estimates based on the model, calibrated to the postwar U.S. economy, show that the effects on output, employment, and welfare can be significant

JEL Classification: D43, D58, E32, H50

Suggested Citation

Aziz, Jahangir and Leruth, Luc, Cyclical Effects of the Composition of Government Purchases (February 1997). IMF Working Paper No. 97/19, Available at SSRN: https://ssrn.com/abstract=882245

Jahangir Aziz (Contact Author)

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Luc Leruth

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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