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An Empirical Investigation into Government Spending and Private Sector Behaviour

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Author Info
Robert A. Amano (Bank of Canada)
Tony S. Wirjanto (University of Waterloo)

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Abstract

We examine whether there is a significant relationship between government and private consumption for Canada. We derive estimating equations between the two types of consumption under both cointegration and no-cointegration assumptions. This distinction seems to have been largely ignored in previous work in the literature. Our results suggest that this distinction is an important one. For government spending on goods and services, our pretests do not allow us to firmly conclude whether government and private consumption are cointegrated or not. Therefore, we estimate the relationship under both cointegration and no cointegration assumptions. Under the cointegration assumption we find the two types of consumption to be complements, whereas under the no-cointegration assumption we find them to be substitutes. For government investment spending we are unable to find any evidence consistent with cointegration. Under the maintained assumption of no cointegration we find no statistically significant relationship but an economic relationship that implies they are complements rather than substitutes.

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Paper provided by EconWPA in its series Macroeconomics with number 9502005.

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Length: 21 pages
Date of creation: 07 Feb 1995
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Handle: RePEc:wpa:wuwpma:9502005

Note: 21 printed pages, compressed PostScript file. Other recent Bank of Canada working papers are listed on the last page of this report. Bank of Canada 94-8
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E - Macroeconomics and Monetary Economics

References listed on IDEAS
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nicholas Ricketts & David Rose, 1995. "Inflation, Learning and Monetary Policy Regimes in the G-7 Economies," Macroeconomics 9506004, EconWPA, revised 15 Feb 1996. [Downloadable!]
  2. Christopher Ragan, 1995. "Deriving Agents' Inflation Forecasts from the Term Structure of Interest Rates," Macroeconomics 9502003, EconWPA. [Downloadable!]
    Other versions:
  3. Robert Vigfusson, 1996. "Switching Between Chartists and Fundamentalists: A Markov Regime-Switching Approach," International Finance 9602003, EconWPA. [Downloadable!]
    Other versions:
  4. Mario Lefebvre, 1995. "Les provinces canadiennes et la convergence : une evaluation empirique," Urban/Regional 9502001, EconWPA. [Downloadable!]
  5. Nicholas Ricketts & David Rose, . "Inflation, Learning And Monetary Policy Regimes In The G-7 Economies," Working Papers 95-6, Bank of Canada. [Downloadable!]
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