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THE EFFECTS OF FISCAL SHOCKS IN A NEW KEYNESIAN MODEL WITH USEFUL GOVERNMENT SPENDING

Published online by Cambridge University Press:  22 May 2014

Francesca D'Auria
Francesca D'Auria*
Affiliation:
European Commission
*
Address correspondence to: Francesca D'Auria, European Commission, DG Economic and Financial Affairs, B-1049 Brussels, Belgium; e-mail: francesca.d'auria@ec.europa.eu.
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Abstract

This paper develops a medium-scale New Keynesian model where consumer preferences depend on government expenditures and public capital is productivity-enhancing in order to account for recent evidence on the effects of government spending shocks. Under plausible assumptions on the degree of complementarity between private and public expenditures and on the output elasticity of public spending and considering alternative monetary policy rules, the effects of fiscal shocks delivered by the model are in line with the evidence.

Keywords

Useful Government SpendingNew Keynesian ModelTaylor Rules

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Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Special Issue 6: Growth, Optimal Fiscal and Monetary Policy, and Financial Frictions , September 2015 , pp. 1380 - 1399
Copyright
Copyright © Cambridge University Press 2014 

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