Journal Article

Trend Productivity Growth and the Government Spending Multiplier

Journal of Macroeconomics

The paper analyzes the effects of government spending shocks under alternative rates of trend growth in a New-Keynesian model characterized by price and wage rigidity. We show that the presence of trend growth makes the impact on output and consumption of government spending shocks smaller but more persistent with a hump shaped impulse response. Our results imply that the impact government spending multiplier decreases while the cumulative multiplier increases with trend growth.

Info

Publication Date
JEL Classification
E21, E62, H31