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Government Purchases and Real Interest Rates

  • Mankiw, N Gregory

This paper examines the dynamic impact of government purchases in a simple general equilibrium model with both durable and nondurable consumer goods as well as productive capital. The model generates perhaps surprising results. In particular, increases in government purchases are shown to cause reductions in real interest rates. The model thus provides a possible explanation for the observed behavior of real interest rates around wars. Copyright 1987 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 95 (1987)
Issue (Month): 2 (April)
Pages: 407-19

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Handle: RePEc:ucp:jpolec:v:95:y:1987:i:2:p:407-19
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  1. Andrew B. Abel & Olivier J. Blanchard, 1982. "An Intertemporal Model of Saving and Investment," NBER Working Papers 0885, National Bureau of Economic Research, Inc.
  2. Judd, Kenneth L, 1985. "Short-run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 298-319, April.
  3. Robert J. Barro & Robert G. King, 1982. "Time-Separable Preference and Intertemporal-Substitution Models of Business Cycles," NBER Working Papers 0888, National Bureau of Economic Research, Inc.
  4. Fumio Hayashi, 1984. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," NBER Working Papers 1305, National Bureau of Economic Research, Inc.
  5. N. Gregory Mankiw, 1983. "Consumer Durables and the Real Interest Rate," NBER Working Papers 1148, National Bureau of Economic Research, Inc.
  6. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
  7. Barro, Robert J., 1981. "Output Effects of Government Purchases," Scholarly Articles 3451294, Harvard University Department of Economics.
  8. Hall, Robert E., 1980. "Labor supply and aggregate fluctuations," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 7-33, January.
  9. Ben S. Bernanke, 1982. "Adjustment Costs, Durables, and Aggregate Consumption," NBER Working Papers 1038, National Bureau of Economic Research, Inc.
  10. Kenneth B. Dunn & Kenneth J. Singleton, 1984. "Modeling the Term Structure of Interest Rates Under Nonseparable Utilityand Duriability of Goods," NBER Working Papers 1415, National Bureau of Economic Research, Inc.
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