Does government spending crowd in private consumption?
Subtitle: theory and empirical evidence for the euro area
By: prepared by Günter Coenen and Roland Straub.
Contributors: Straub, Roland.; International Monetary Fund. Monetary and Financial Systems Dept.
Series: IMF working paper -- WP/05/159
Publisher: International Monetary Fund, Monetary and Financial Systems Dept.
Published: 2005
Place of publication: Washington, D.C
Language: eng
Number of pages: 36
Subjects: Consumption (Economics) -- European Union countries -- Econometric models.; Fiscal policy -- European Union countries -- Econometric models.; Crowding out (Economics) -- European Union countries -- Econometric models.; European Union countries -- Appropriations and expenditures -- Econometric models.
Description: In this paper, we revisit the effects of government spending shocks on private consumption within an estimated New-Keynesian DSGE model of the euro area featuring non-Ricardian households. Employing Bayesian inference methods, we show that the presence of non- Ricardian households is in general conducive to raising the level of consumption in response to government spending shocks when compared with the benchmark specification without non-Ricardian households. However, we find that there is only a fairly small chance that government spending shocks crowd in consumption, mainly because the estimated share of non-Ricardian households is relatively low, but also because of the large negative wealth effect induced by the highly persistent nature of government spending shocks.
Notes: "August 2005."

Includes bibliographical references (p. 35-36).

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