Cyclical Effects of the Composition of Government Purchases

Author/Editor:

Jahangir Aziz ; Luc E. Leruth

Publication Date:

February 1, 1997

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper constructs a general equilibrium model with monopolistically competitive firms and endogenous markups where government spending consists of both consumption and investment goods. It is shown that when markups are countercyclical, increases in the share of investment goods in aggregate government expenditure entail a trade-off between greater long- run efficiency and higher short-run volatility. Estimates based on the model, calibrated to the postwar U.S. economy, show that the effects on output, employment, and welfare can be significant

Series:

Working Paper No. 97/19

Frequency:

Annually

English

Publication Date:

February 1, 1997

ISBN/ISSN:

9781451843712/1018-5941

Stock No:

WPIEA0191997

Format:

Paper

Pages:

38

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