## Evaluating Changes in the Transmission Mechanism of Government Spending Shocks

_IMF Working Papers, March 10, 2017_

## Source details

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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

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### 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

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## Content in this bundle

- **Evaluating Changes in the Transmission Mechanism of Government Spending Shocks, WP/17/49, March 2017**
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_Source: https://www.imf.org/en/publications/wp/issues/2017/03/10/evaluating-changes-in-the-transmission-mechanism-of-government-spending-shocks-44736_