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Government Expenditures and the Permanent-Income Model

Author

Listed:
  • Robert A. Amano

    (Bank of Canada)

  • Tony S. Wirjanto

    (University of Waterloo)

Abstract

There is a substantial empirical literature which examines the relationship between private and public consumption. The conclusions from this literature, however, are generally mixed. In this paper, we attempt to provide some additional evidence on this relationship. We consider a two-good permanent-income model which allows us to estimate both the intraperiod and intertemporal elasticities of substitution. The estimation strategy proceeds in two steps. In the first step we use cointegration methods to estimate the intraperiod preference parameter, while in the second step we estimate the intertemporal parameter via a generalized method of moments. A useful implication of this approach is that it allows us to use the estimated preference parameters to shed some light on whether private and public consumptions are best described as complements, substitutes, or unrelated occurrences (in a Edgeworth-Pareto sense). (Copyright: Elsevier)

Suggested Citation

  • Robert A. Amano & Tony S. Wirjanto, 1998. "Government Expenditures and the Permanent-Income Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 719-730, July.
  • Handle: RePEc:red:issued:v:1:y:1998:i:3:p:719-730
    DOI: 10.1006/redy.1998.0021
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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