Cyclical Effects of the Composition of Government Purchases

Content Provider	Semantic Scholar
Author	Aziz, Jahangir Leruth, Luc
Copyright Year	1999
Abstract	This paper constructs a general equilibrium model with monopolistically competitive firms and endogenous markups where government spending consists of both consumption and investment goods. It is shown that when markups are countercyclical, an increase in the share of investment goods in total public expenditure, raises output, employment, and capital stock in the long-run leading to increases in welfare and productivity. However, this also raises the short run cyclical variability of the economy. In particular, variance of output and employment arising from technological and aggregate demand shocks increase as the long run share of government investment goes up implying a trade-off between greater long-run efficiency and higher short-run volatility. The views expressed are those of the authors and do not necessarily represent those of the Fund. An earlier version of the paper was issued as a Working Paper of the International Monetary Fund No. WP/97/19 . It is available at www.imf.org.
File Format	PDF HTM / HTML
Language	English
Access Restriction	Open
Subject Keyword	Aggregate data Kind of quantity - Equilibrium Manufactured Supplies Money Sample Variance Shock Spatial variability Volatility
Content Type	Text
Resource Type	Article