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Trend Growth and the Dynamic Effects of Government Spending

  • Mewael F. Tesfaselassie

The paper studies the macroeconomic effects of government spending shocks in an economy characterized by positive trend growth. It shows that the lower is the trend growth rate the less inflationary are government spending shocks and vice versa. Moreover, on impact output is higher but exhibits less persistence the lower is trend growth, an effect that also characterizes consumption and the fiscal multiplier given that consumption and labor are somewhat complementary

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File URL: https://www.ifw-members.ifw-kiel.de/publications/trend-growth-and-the-dynamic-effects-of-government-spending/kwp-1678.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1678.

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Length: 23 pages
Date of creation: Jan 2011
Handle: RePEc:kie:kieliw:1678
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  16. Schmitt-Grohé, Stephanie & Uribe, Martín, 2005. "Optimal Inflation Stabilization in a Medium-Scale Macroeonomic Model," CEPR Discussion Papers 5424, C.E.P.R. Discussion Papers.
  17. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  18. Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Staff Working Papers 08-36, Bank of Canada.
  19. Michael T. Kiley, 2010. "Habit Persistence, Nonseparability between Consumption and Leisure, or Rule-of-Thumb Consumers: Which Accounts for the Predictability of Consumption Growth?," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 679-683, August.
  20. Mattesini, Fabrizio & Nisticò, Salvatore, 2010. "Trend growth and optimal monetary policy," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 797-815, September.
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  22. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
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