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Understanding the Effects of a Shock to Government Purchases

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  • Wendy Edelberg
  • Martin Eichenbaum
  • Jonas D.M. Fisher

Abstract

This paper investigates the consequences of an exogenous increase in U.S. government purchases. We find that in response to such a shock, employment, output, and nonresidential investment rise, while real wages, residential investment, and consumption expenditures fall. The paper argues that a simple variant of the neoclassical model which distinguishes between nonresidential and residential investment is consistent with this evidence.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6737.

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Date of creation: Sep 1998
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Handle: RePEc:nbr:nberwo:6737

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  1. Greenwood, J. & Hercowitz, Z., 1991. "The Allocation of Capital and Time Over the Business Cycle," RCER Working Papers 268, University of Rochester - Center for Economic Research (RCER).
  2. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
  3. 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, vol. 28(2), pages 233-54, May.
  4. S. Rao Aiyagari & Lawrence J. Christiano & Martin Eichenbaum, 1990. "The output, employment, and interest rate effects of government consumption," Working Papers 456, Federal Reserve Bank of Minneapolis.
  5. Eichenbaum, Martin, 1998. "Costly capital reallocation and the effects of government spending : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 195-209, June.
  6. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
  7. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
  8. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  9. Casey B. Mulligan, . "Pecuniary and Nonpecuniary Incentives to Work in the U.S. During World War II," University of Chicago - Population Research Center 95-3, Chicago - Population Research Center.
  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Modeling money," Working Paper Series, Macroeconomic Issues WP-97-17, Federal Reserve Bank of Chicago.
  11. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  12. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  13. Fisher, Jonas D. M., 1997. "Relative prices, complementarities and comovement among components of aggregate expenditures," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 449-474, August.
  14. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
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  1. Is it Possible that the President thinks Economists Agree That Spending is the Answer?
    by Matt Mitchell in Neighborhood Effects on 2010-10-05 18:18:32
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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