Cyclical Effects of the Composition of Government Purchases
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 gov...
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| Format: | eBook |
| Language: | English |
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Washington, D.C.
International Monetary Fund
1997
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| Series: | IMF Working Papers
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| Collection: | International Monetary Fund - Collection details see MPG.ReNa |
| 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 |
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| Physical Description: | 38 pages |
| ISBN: | 9781451843712 |