Fiscal spending shocks, endogenous government spending, and real business cycles

doi:10.1016/0165-1889(94)00850-X

Journal of Economic Dynamics and Control

Volume 20, Issues 1–3, January–March 1996, Pages 237-256

https://doi.org/10.1016/0165-1889(94)00850-X Get rights and content

Abstract

We analyze a real business cycle model in which the government optimally chooses public investment and nonmilitary current expenditures to maximize the welfare of the representative private agent. We characterize the optimal response of endogenous spending to shocks to technology and to military expenditures. Comovements between the components of government spending and other macroeconomic aggregates predicted by the model are compared with the corresponding comovements in the U.S. data. The model captures the qualitative features of the relative volatilities of the components of government spending quite well, but predicts too high correlations between the components of government spending and output.

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^∗: Ambler acknowledges financial support from the SSHRC and the FCAR. We thank Anton Braun, Louis Phaneuf, Sergio Rebelo, Richard Rogerson, Randall Wright, and two anonymous referees for comments on previous versions of this paper. The usual caveat applies.

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Fiscal spending shocks, endogenous government spending, and real business cycles

Abstract

Economics Letters

Journal of Economic Dynamics and Control

Journal of Monetary Economics

Journal of Monetary Economics

Journal of Monetary Economics

The output, employment and interest rate effects of government consumption

Journal of Monetary Economics

Stochastic depreciation and the business cycle

International Economic Review

Recursive methods for computing equilibria of general equilibrium dynamic Stackelberg games

The neoclassical approach to fiscal policy

Fiscal policy in general equilibrium

American Economic Review

Lectures on macroeconomics