Creator

• Aiyagari, S. Rao
• Christiano, Lawrence J.
• Eichenbaum, Martin S.

Series

• Working paper (Federal Reserve Bank of Minneapolis. Research Department)

Issue number

• 456

Date created

• 1990-04

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 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 counterexamples to existing claims in the literature.

Related information

• Published in: Journal of Monetary Economics (Vol. 30, No. 1, October 1992, pp. 73-86), https://doi.org/10.1016/0304-3932(92)90045-4.

  Discussion Paper 25

Date modified

• 10/28/2020

Corporate Author

• Federal Reserve Bank of Minneapolis. Research Department

Publisher

• Federal Reserve Bank of Minneapolis

Resource type

• Research Paper

DOI

•  https://doi.org/10.21034/wp.456

In Collection:

• Working Papers

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