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 Classification: E32, E62fiscal multiplier, government spending, rule-of-thumb consumers, Taylor rules

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

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.Rule-of-Thumb Consumers, Fiscal Multiplier, Government Spending, Taylor Rules

Aggregate investment in a growth model with adjustment costs

In this paper, the author simulates the general equilibrium structure trying to mimic the observed variability of aggregate investment and the statistic properties of investment with its price and other real variablesthis model generates equilibrium prices at each period of time. The paper also studies the co-movements of the price of investment, of rental price of capital and of aggregate investment when exogenous perturbations affect the optimal paths of the variables that solve the assumed structural model. Finally uses the data generated by the model to test the performance of alternative partial equilibrium analyses of aggregate investment. Reference

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.

The challenges for monetary policy normalisation in the United States in the current economic situation

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Cross-country differences in monetary policy transmission

This paper examines possible explanations for observed differences in the transmission of euro area monetary policy in central bank large-scale macroeconomic models. In particular it considers the extent to which these differences are due to differences in the underlying economies or (possibly unrelated) differences in the modelling strategies adopted for each country. It finds that, against most yardsticks, the cross-country variations in the results are found to be plausible in the sense that they correspond with other evidence or observed characteristics of the economies in question. Nevertheless, the role of differing modelling strategies may also play a role. Important features of the models - for instance in the treatment of expectations or wealth - can have a major bearing on the results that may not necessarily reflect differences in the underlying economies. JEL Classification: C53, E52, E37euro area differences, macroeconometric models, monetary transmission

Fiscal consolidation after the great recession : the role of composition

Entre 2009 y 2014, los países de la OCDE han acometido un importante proceso de consolidación fiscal. En el presente trabajo examinamos el efecto de este proceso sobre la actividad económica. Los multiplicadores fiscales de corto plazo se estiman entre el 1,2 % y el 2 % del PIB, mayores que los obtenidos en «tiempos normales», lo que implica que el efecto contractivo ha sido mayor en un entorno de actividad económica más deprimida. No obstante, encontramos que las medidas de consolidación sobre los ingresos públicos tienen un efecto mayor y más persistente que las medidas sobre el gasto, un resultado coherente con la literatura que sugiere que la composición del ajuste es relevante para el cálculo del efecto de las medidas fiscales en la economíaWe have examined the fiscal consolidation episodes in a group of OECD countries from 2009 to 2014. The range of the estimated short-term fiscal multiplier runs from 1.2% to 2% of GDP, larger than those obtained in more “normal times”, implying that the contractionary effect has been greater in depressed environments. Nevertheless, we have also found that revenue measures have a higher and more persistent real impact than expenditure measures, which is more consistent with the literature and suggests that expenditure cuts are less harmful for the economy than tax hike

On the real effects of monetary policy

Este trabajo analiza un aspecto de gran relevancia para los bancos centrales: el efecto de la politica monetaria en la economia. La evidencia empirica sugiere que, si bien en el medio plazo la inflacion es un fenomeno monetario y conlleva costes economicos relevantes, en el corto plazo la politica monetaria afecta a las variables reales, presumiblemente como resultado de la existencia de rigideces reales y nominales. A la luz de esta evidencia, el trabajo analiza , en primer lugar, cual es la estrategia de politica mas adecuada y, en segundo lugar, la incertidumbre que conlleva la actuacion de la politica monetaria en un entorno, como el actual, de baja inflacion y bajos tipos de interes. (jv) (ad