Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200579 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 2018-09
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
Using a Bayesian SVAR analysis, we document that an increase in government purchases raises private consumption, the real wage and total factor productivity (TFP) while reducing inflation. Each of these facts is hard to reconcile with both neoclassical and New-Keynesian models. We extend a standard New-Keynesian model to allow for skill accumulation through past work experience, following Chang, Gomes and Schorfheide (2002). An increase in government spending in- creases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall lowering future expected inflation and, through the monetary policy rule, the real interest rate. Consumption increases as a result.
Subjects: 
Fiscal policy transmission
consumption
real wage
JEL: 
E62
E63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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