Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison

Anna Kormilitsina () and Sarah Zubairy

No 1608, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: The inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures, observed in many empirical studies, has stimulated the development of alternative theories of government spending shocks. Using the Bayesian approach, we evaluate the quantitative performance of five extant models, and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model. Moreover, we find that consumption decreases in all estimated models in response to a rise in government spending.

Keywords: government spending shock; Bayesian comparison; transmission mechanism; deep habits; rule of thumb consumers (search for similar items in EconPapers)
JEL-codes: C11 E32 E62 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison (2018)
Working Paper: Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison (2015)
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