Evaluating Changes in the Transmission Mechanism of Government Spending Shocks
IMF Working Papers, March 10, 2017
Source details
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- Evaluating Changes in the Transmission Mechanism of Government Spending Shocks
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Bibliographic details
- Authors: Nooman Rebei
- Published: March 10, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475586060.001
Summary
- Author: Nooman Rebei
- Date: March 10, 2017
- Core finding: Earlier samples show government spending increasingly crowding in private consumption; this relation is reverted in the latest periods.
- Approach: Empirical analysis based on rolling windows of U.S. data; theoretical model embedding non-separable public and private consumption in the utility function and rule-of-thumb consumers; iterative full information estimation.
Empirical findings
- Rolling-window U.S. data analysis:
- Earlier samples: government spending increasingly crowds in private consumption.
- Latest periods: the crowding-in relation is reverted.
- Key empirical focus areas listed as subjects:
- Consumption, Expenditure, Labor, National accounts, Prices, Private consumption, Real wages, Sticky prices
Model and estimation
- Model features:
- Non-separable public and private consumption in the utility function.
- Rule-of-thumb consumers (financially constrained consumers).
- Estimation approach:
- Iterative full information estimation of the model.
Drivers of non-monotonic transmission
- The estimation reveals that changes in the co-movement between private and public spending are primarily driven by:
- Fluctuations in the elasticity of substitution between private and public consumption.
- The share of financially constrained consumers.
- The elasticity of intertemporal substitution.
Keywords and methodological tags
- Keywords: Bayesian Vector Autoregression, Consumption, consumption adjustment, consumption response, crowding in, government spending, Government spending in utility, government spending multiplier, government spending shock, impulse-response function, Private consumption, reaction decline, Real wages, Rule-of-thumb consumers, shocks to the economy, Sticky prices, Tax rule, WP
Content in this bundle
- Evaluating Changes in the Transmission Mechanism of Government Spending Shocks, WP/17/49, March 2017