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Trend productivity growth and the government spending multiplier |
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| Affiliation: | 1. Dipartimento di Matematica, Università di Bari, Via Orabona, Bari 4, I-70125, Italy;2. Dipartimento di Economia, Università di Foggia, Largo Papa Giovanni Paolo II, Foggia 1, I-71121, Italy;1. Wilfrid Laurier University and CAMA, Canada;2. The University of Tasmania, CAMA and CFAP, Australia;1. Department of Economics, Athens University of Economics and Business, 76 Patission Str, Athens 10434, Greece;2. CESifo, Munich 81675, Germany |
| Abstract: | 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. |
| Keywords: | Trend growth Nonseparable utility Nominal rigidities Government spending multiplier |
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