Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209959
Authors: 
Natvik, Gisle James
Year of Publication: 
2010
Series/Report no.: 
Working Paper No. 2010/14
Abstract: 
Galí, López-Salido, and Vallés (2007) suggest that because part of the population follow a rule-of-thumb by which they spend their entire disposable income each period, private consumption responds positively to deficit-financed increases in government spending. Key to this result is a centralized labor market. I show that the ability to explain the positive consumption response as a consequence of rule-of-thumb behavior hinges on the arbitrary assumption that wealth is redistributed across households in steady state. Inequality leads to equilibrium indeterminacy and undermines the theoretical foundation of the centralized labor market.
Subjects: 
rule-of-thumb consumers
wealth inequality
government spending
indeterminacy
JEL: 
E32
E62
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-564-9
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/4.0/deed.no
Document Type: 
Working Paper
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