Understanding the effects of government spending on consumption

Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. JEL Klassifikation: E32, E62

Consumption and habits : evidence from panel data

The purpose of this paper is to test for the presence of habit formation in consumption decisions using household panel data. We use the test proposed by Meghir and Weber (1996) and estimate the within -period marginal rate of substitution between commodities, which is robust to the presence of liquidity constraints. To that end, we use a Spanish panel data set in which households are observed up to eight consecutive quarters. This temporal dimension is crucial, since it allows us to take into account time invariant unobserved heterogeneity across households ("fixed effects") and, therefore, to investigate if the relationship between current and past consumption reflects habits or heterogeneity. Our results conf irm the importance of accounting for fixed effects when analyzing intertemporal consumption decisions allowing for time non-separabilities. Once fixed effects are controlled for and a proper set of instruments is used, the results yield supporting evidence of habit formation in the demand system of food at home, transport and services

The Transmission of Domestic Shocks in the Open Economy

This paper uses an open economy DSGE model to explore how trade openness affects the transmission of domestic shocks. For some calibrations, closed and open economies appear dramatically different, reminiscent of the implications of Mundell-Fleming style models. However, we argue such stark differences hinge on calibrations that impose an implausibly high trade price elasticity and Frisch elasticity of labor supply. Overall, our results suggest that the main effects of openness are on the composition of expenditure, and on the wedge between consumer and domestic prices, rather than on the response of aggregate output and domestic prices.

Unemployment and Inflation Persistence in Spain: Are There Phillips Trade-Offs?

This paper studies the dynamic behavior of inflation and unemployment in Spain during the period 1964?1997. In particular, we analyze the implications of high persistence in both unemployment and inflation dynamics for inference regarding the size of Phillips trade-offs and sacrifice ratios in the Spanish economy, in response to a demand shock. To do so we use a Stuctural VAR approach with several identification outlines which give rise to alternative interpretations of the joint unemployment-inflation dynamics. When using a bivariate VAR we cannot reject the existence of a permanent output loss of one-half of one percentage point for each percentage point of permanent disinflation. However, when the VAR is augmented with a third variable, in order to disentangle monetary from non-monetary shocks within the demand class, the evidence favours a lower and marginally permanent trade-off with an output loss of about one-fourth of one percentage point.Publicad

Sticky-price models and the natural rate hypothesis

A major criticism of standard specifications of price adjustment in models for monetary policy analysis is that they violate the natural rate hypothesis by allowing output to differ from potential in steady state. In this paper we estimate a dynamic optimizing business cycle model whose price-setting behavior satisfies the natural rate hypothesis. The price-adjustment specifications we consider are the sticky-information specification of Mankiw and Reis (2002) and the indexed contracts of Christiano, Eichenbaum, and Evans (2005). Our empirical estimates of the real side of the economy are similar whichever price adjustment specification is chosen. Consequently, the alternative model specifications deliver similar estimates of the U.S. output gap series, but the empirical behavior of the gap series differs substantially from standard gap estimates.Monetary policy ; Prices

Understanding the Effects of Government Spending on Consumption

Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.

Tobin's imperfect asset substitution in optimizing general equilibrium

In this paper, we present a dynamic optimizing model that allows explicitly for imperfect substitutability between different financial assets. This is specified in a manner which captures Tobin's (1969) view that an expansion of one asset's supply affects both the yield on that asset and the spread or "risk premium" between returns on that asset and alternative assets. Our estimates of this model on U.S. data confirm that some of the observed deviations of long-term rates from the expectations theory of the term structure can be traced to movements in the relative stocks of financial assets. The richer aggregate demand and asset specifications imply that there exists an additional channel of monetary policy. Our results suggest that central bank operations exercise a modest influence on the relative prices of alternative financial securities, and so exert an extra effect on long-term yields and aggregate demand separate from their effect on the expected path of short-term rates.Monetary policy ; Macroeconomics

Money and the natural rate of interest: structural estimates for the United States and the Euro area

We examine the role of money, allowing for three competing environments: the New Keynesian model with separable utility and static money demand; a non-separable utility variant with habit formation; and a version with adjustment costs for holding real balances. The last two variants imply forward-looking behavior of real money balances, as it is optimal for agents to allow their forecast of future interest rates to affect current portfolio decisions. We distinguish between these specifications by conducting a structural econometric analysis for the U.S. and the euro area. FIML estimates confirm the forward-looking character of money demand. Using these estimates we find that, in response to preference and technology shocks, real money balances are valuable in anticipating future variations in the natural interest rate.Money ; Interest rates

CONSUMPTION AND HABITS: EVIDENCE FROM PANEL DATA

The purpose of this paper is to test for the presence of habit formation in consumption decisions using household panel data. We use the test proposed by Meghir and Weber (1996) and estimate the within -period marginal rate of substitution between commodities, which is robust to the presence of liquidity constraints. To that end, we use a Spanish panel data set in which households are observed up to eight consecutive quarters. This temporal dimension is crucial, since it allows us to take into account time invariant unobserved heterogeneity across households (“fixed effects”) and, therefore, to investigate if the relationship between current and past consumption reflects habits or heterogeneity. Our results conf irm the importance of accounting for fixed effects when analyzing intertemporal consumption decisions allowing for time non-separabilities. Once fixed effects are controlled for and a proper set of instruments is used, the results yield supporting evidence of habit formation in the demand system of food at home, transport and services.

Influence of Nb-doping on the structural and electrical properties of lanthanum molybdates, La5.4MoO11.1

Nowadays, hydrogen is receiving a great deal of attention as an energy carrier. Commonly, it is obtained by hydrocarbons reforming, such as natural gas, coal and biomass. However, the resulting hydrogen needs to be purified to remove by-products and impurities, increasing the production costs. An alternative for hydrogen production is proton-conducting ceramics, where hydrogen separation takes place via a chemical potential gradient across the membrane.1, 2 In this work, Nb-doped La6MoO12--based compounds have been investigated as part of a new family of materials very competitive as SOFC electrolyte and hydrogen separation membranes.3 These materials, La5.4Mo1-xNbxO11.1-x/2 (x = 0.05, 0.10, 0.15 y 0.20) were synthesized by the freeze-drying precursor method and calcination conditions have been optimized to obtain single phases. A complete characterization has been carried out using X-Ray powder diffraction and scanning and transmission electron microscopy. The total conductivity was determined by complex impedance spectroscopy at different atmospheres. Different polymorphs are obtained as a function of the cooling rate and the dopant amount. The samples cooled by quenching are cubic with a fluorite-type structure (Fm3 ̅m) and the ones cooled at 50 y 0.5 ºC•min-1 are rhombohedral (R1 and R2 polymorphs). For niobium contents higher than x = 0.10 the R1 polymorph is stabilised at cooling rates equal or inferior to 50 ºC•min-1. For all three series, the incorporation of niobium into La5.4MoO11.1 increases the conductivity, reaching the best values for x=0.10 and the sample obtained by quenching.Universidad de Málaga. Campus de Excelencia Internacional Andalucía Tech