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Industry evidence on the effects of government spending

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Author Info

  • Christopher J. Nekarda
  • Valerie A. Ramey

Abstract

This paper investigates industry-level effects of government purchases in order to shed light on the transmission mechanism for government spending on the aggregate economy. We begin by highlighting the different theoretical predictions concerning the effects of government spending on industry labor market equilibrium. We then create a panel data set that matches output and labor variables to shifts in industry-specific government demand. The empirical results indicate that increases in government demand raise output and hours, but lower real product wages and productivity. Markups do not change as a result of government demand increases. The results are consistent with the neoclassical model of government spending, but they are not consistent with the New Keynesian model of the effects of government spending.

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File URL: http://www.federalreserve.gov/pubs/feds/2010/201028/201028abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/2010/201028/201028pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2010-28.

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Date of creation: 2010
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Handle: RePEc:fip:fedgfe:2010-28

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Related research

Keywords: Expenditures; Public ; Government spending policy;

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  1. Industry Evidence on the Effects of Government Spending
    by Agent Continuum in Agent Continuum on 2010-06-14 05:36:43
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