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Understanding the E¤ects of Shocks to Government Purchases

By Wendy Edelberg, Martin Eichenbaum and Jonas D. M. Fisher


This paper investigates the consequences of an exogenous increase in U.S. government purchases. We …nd that in response to such a shock, employment, output, and nonresidential investment rise, while real wages, residential investment and consumption expenditures fall. The paper argues that a simple variant of the neoclassical growth model which distinguishes between nonresidential and residential investment is consistent with this evidence

Year: 1999
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