{
  "title": "Evaluating Changes in the Transmission Mechanism of Government Spending Shocks",
  "publication": "IMF Working Papers, March 10, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/03/10/evaluating-changes-in-the-transmission-mechanism-of-government-spending-shocks-44736",
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  "summary": "We empirically revisit the crowding-in effect of government spending on private consumption based on rolling windows of U.S. data. Results show that in earlier samples government spending is increasingly crowding in private consumption; however, this relation is reverted in the latest periods.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Author: Nooman Rebei\n- Date: March 10, 2017\n- Core finding: Earlier samples show government spending increasingly crowding in private consumption; this relation is reverted in the latest periods.\n- 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."
    },
    {
      "heading": "Empirical findings",
      "content": "- Rolling-window U.S. data analysis:\n  - Earlier samples: government spending increasingly crowds in private consumption.\n  - Latest periods: the crowding-in relation is reverted.\n- Key empirical focus areas listed as subjects:\n  - Consumption, Expenditure, Labor, National accounts, Prices, Private consumption, Real wages, Sticky prices"
    },
    {
      "heading": "Model and estimation",
      "content": "- Model features:\n  - Non-separable public and private consumption in the utility function.\n  - Rule-of-thumb consumers (financially constrained consumers).\n- Estimation approach:\n  - Iterative full information estimation of the model."
    },
    {
      "heading": "Drivers of non-monotonic transmission",
      "content": "- The estimation reveals that changes in the co-movement between private and public spending are primarily driven by:\n  - Fluctuations in the elasticity of substitution between private and public consumption.\n  - The share of financially constrained consumers.\n  - The elasticity of intertemporal substitution."
    },
    {
      "heading": "Keywords and methodological tags",
      "content": "- 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\n\n---\n\n Content in this bundle\n\n- Evaluating Changes in the Transmission Mechanism of Government Spending Shocks, WP/17/49, March 2017\n  - Evaluating Changes in the Transmission Mechanism of Government Spending Shocks, WP/17/49, March 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Evaluating Changes in the Transmission Mechanism of Government Spending Shocks, WP/17/49, March 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/03/10/evaluating-changes-in-the-transmission-mechanism-of-government-spending-shocks-44736"
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    "Authors: Nooman Rebei",
    "Published: March 10, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475586060.001",
    "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.",
    "Rolling-window U.S. data analysis:",
    "Key empirical focus areas listed as subjects:",
    "Model features:",
    "Estimation approach:",
    "The estimation reveals that changes in the co-movement between private and public spending are primarily driven by:",
    "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",
    "**Evaluating Changes in the Transmission Mechanism of Government Spending Shocks, WP/17/49, March 2017**"
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