Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209874
Authors: 
Natvik, Gisle James
Year of Publication: 
2006
Series/Report no.: 
Working Paper No. 2006/11
Abstract: 
This paper explores how government size affects the scope for equilibrium indeterminacy in a New Keynesian economy where part of the population live hand-to-mouth. I find that in this framework, a larger public sector may widen the scope for self-fulfilling prophecies to occur. This takes place even though taxes serve to reduce swings in current income. In general, government provision of goods that are Edgeworth substitutes for private consumption tend to narrow the scope for indeterminacy, while government goods that are Edgeworth complements for private consumption increase the problem of indeterminacy. Hence monetary policy should be conducted with an eye to the amount and composition of government consumption.
Subjects: 
Taylor principle
public expenditures
fiscal policy rules
rule-of-thumb consumers
JEL: 
E32
E52
E63
Persistent Identifier of the first edition: 
ISBN: 
82-7553-369-4
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
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