Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152773
Authors: 
Galí, Jordi
López-Salido, David
Vallés, Javier
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 339
Abstract: 
Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.
Subjects: 
fiscal multiplier
government spending
rule-of-thumb consumers
Taylor rules
JEL: 
E32
E62
Document Type: 
Working Paper

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