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Trend Growth and the Dynamic Effects of Government Spending

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  • Mewael F. Tesfaselassie

Abstract

The paper studies the macroeconomic effects of government spending shocks in an economy characterized by positive trend growth. It shows that the lower is the trend growth rate the less inflationary are government spending shocks and vice versa. Moreover, on impact output is higher but exhibits less persistence the lower is trend growth, an effect that also characterizes consumption and the fiscal multiplier given that consumption and labor are somewhat complementary

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File URL: https://www.ifw-members.ifw-kiel.de/publications/trend-growth-and-the-dynamic-effects-of-government-spending/kwp-1678.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1678.

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Length: 23 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:kie:kieliw:1678

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Keywords: trend growth; government spending; fiscal multiplier;

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References

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  9. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  10. Guenter Franke & Jan Pieter Krahnen, 2005. "Default Risk Sharing Between Banks and Markets: The Contribution of Collateralized Debt Obligations," NBER Working Papers 11741, National Bureau of Economic Research, Inc.
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  12. Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
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Cited by:
  1. Tesfaselassie, Mewael F., 2011. "The effects of government spending in a growing economy," Kiel Policy Brief 25, Kiel Institute for the World Economy (IfW).

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