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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. repec:oup:qjecon:v:99:y:1984:i:4:p:817-39 is not listed on IDEAS
  2. 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.
  3. Robert E. Hall, 1979. "Labor Supply and Aggregate Fluctuations," NBER Working Papers 0385, National Bureau of Economic Research, Inc.
  4. Kenneth L. Judd, 1983. "Short-Run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Discussion Papers 559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 41-68, January.
  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. Abel, Andrew B & Blanchard, Olivier J, 1983. "An Intertemporal Model of Saving and Investment," Econometrica, Econometric Society, vol. 51(3), pages 675-92, May.
  9. repec:oup:qjecon:v:100:y:1985:i:4:p:1083-1113 is not listed on IDEAS
  10. N. Gregory Mankiw, 1983. "Consumer Durables and the Real Interest Rate," NBER Working Papers 1148, National Bureau of Economic Research, Inc.
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