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Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison

Listed author(s):
  • Anna Kormilitsina

    ()

    (Southern Methodist University)

  • Sarah Zubairy

    ()

    (Texas A&M University)

The inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures, observed in many empirical studies, has stimulated the development of alternative theories of government spending shocks. Using the Bayesian approach, we evaluate the quantitative performance of five extant models, and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model. Moreover, we find that consumption decreases in all estimated models in response to a rise in government spending.

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File URL: ftp://ftp1.economics.smu.edu/WorkingPapers/2016/KORMILITSINA/KORMILITSINA-2016-08.pdf
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Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 1608.

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Date of creation: Jan 2016
Handle: RePEc:smu:ecowpa:1608
Contact details of provider: Postal:
Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496

Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

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