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Industry Evidence on the Effects of Government Spending

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  • 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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15754.

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Date of creation: Feb 2010
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Publication status: published as Christopher J. Nekarda & Valerie A. Ramey, 2011. "Industry Evidence on the Effects of Government Spending," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 36-59, January.
Handle: RePEc:nbr:nberwo:15754

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  1. Robert J. Barro, 1980. "Output Effects of Government Purchases," NBER Working Papers 0432, National Bureau of Economic Research, Inc.
  2. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
  3. Patrick Kline, 2008. "Understanding Sectoral Labor Market Dynamics: An Equilibrium Analysis of the Oil and Gas Field Services Industry," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1645, Cowles Foundation for Research in Economics, Yale University.
  4. Yongsung Chang & Jay H. Hong, 2006. "Do Technological Improvements in the Manufacturing Sector Raise or Lower Employment?," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 352-368, March.
  5. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, Elsevier, vol. 115(1), pages 89-117, March.
  6. Shea, J., 1991. "Do Supply Curves Slope Up?," Working papers, Wisconsin Madison - Social Systems 9116, Wisconsin Madison - Social Systems.
  7. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  8. Christopher J. Nekarda & Valerie A. Ramey, 2013. "The Cyclical Behavior of the Price-Cost Markup," NBER Working Papers 19099, National Bureau of Economic Research, Inc.
  9. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 546, Board of Governors of the Federal Reserve System (U.S.).
  10. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  11. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(2), pages 233-54, May.
  12. Min Ouyang, 2011. "On the Cyclicality of R&D," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 542-553, May.
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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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