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Understanding the Effects of a Shock to Government Purchases

Author Info

  • Wendy Edelberg

    (Department of Economics, University of Chicago)

  • Martin Eichenbaum

    (Department of Economics, Northwestern University)

  • Jonas D.M. Fisher

    (Federal Reserve Bank of Chicago)

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 growth model which distinguishes between non-residential investment is consistent with this evidence. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1998.0036
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 2 (1999)
Issue (Month): 1 (January)
Pages: 166-206

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Handle: RePEc:red:issued:v:2:y:1999:i:1:p:166-206
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Find related papers by JEL classification:
  • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
  • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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  1. S. Rao Aiyagari & Lawrence J. Christiano & Martin Eichenbaum, 1990. "The output, employment, and interest rate effects of government consumption," Working Paper Series, Macroeconomic Issues 90-10, Federal Reserve Bank of Chicago.
  2. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
  3. Greenwood, Jeremy & Hercowitz, Zvi, 1991. "The Allocation of Capital and Time over the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1188-214, December.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  10. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  11. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
  12. 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.
  13. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Modeling Money," NBER Working Papers 6371, National Bureau of Economic Research, Inc.
  14. 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.
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Blog mentions

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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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