Does government spending crowd in private consumption? Theory and empirical evidence for the euro area

Arbeitspapier

In this paper, we revisit the effects of government spending shocks on private consumption within an estimated New-Keynesian DSGE model of the euro area featuring non-Ricardian households. Employing Bayesian inference methods, we show that the presence of non-Ricardian households is in general conducive to raising the level of consumption in response to government spending shocks when compared with the benchmark specification without non-Ricardian households. However, we find that there is only a fairly small chance that government spending shocks crowd in consumption, mainly because the estimated share of non-Ricardian households is relatively low, but also due to the large negative wealth effect induced by the highly persistent nature of government spending shocks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 513

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Fiscal Policy
• Subject: DSGE modelling ; euro area ; Fiscal Policy ; non-Ricardian households ; Öffentliche Ausgaben ; Privater Konsum ; Geldpolitik ; Eurozone ; Schock ; Stochastischer Prozess ; Dynamische Wirtschaftstheorie ; Allgemeines Gleichgewicht ; Theorie ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Coenen, Günter ; Straub, Roland
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/152947
• Last update: 10.03.2025, 11:41 AM CET