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Non-Ricardian Households and Fiscal Policy in an Estimated DSGE Model of the Euro Area

Author

Listed:
  • Roland Straub
  • Günter Coenen

    (IMF public)

Abstract

In this paper, we revisit the effects of government spending shocks on private aggregate consumption within an estimated New-Keynesian DSGE model of the euro area featuring non-Ricardian households and a relatively detailed fiscal policy set up. Employing Bayesian inference methods, we show that the presence of non-Ricardian households is in general conducive to raising the level of aggregate consumption in response to government spending shocks when compared with the benchmark specification without non-Ricardian households. As a practical matter, however, we find that there is only a fairly small chance that government spending shocks crowd in aggregate consumption, mainly because the estimated share of non-Ricardian households is relatively low, but also due to the large negative wealth effect induced by the highly persistent nature of government spending shocks

Suggested Citation

  • Roland Straub & Günter Coenen, 2005. "Non-Ricardian Households and Fiscal Policy in an Estimated DSGE Model of the Euro Area," Computing in Economics and Finance 2005 102, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:102
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    More about this item

    Keywords

    fiscal policy; DSGE models; non-Ricardian households.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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