Government spending, interest rates, and capital accumulation in a two-sector model |
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Authors: | Yoshiyasu Ono & Akihisa Shibata |
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Institution: | Institute of Social and Economic Research, Osaka University,;Institute of Economic Research, Kyoto University |
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Abstract: | This paper investigates dynamic impacts of a temporary fiscal expansion in a two-sector growth model. If the expansion falls on consumption-investment commodities, capital accumulation can be either promoted or reduced and the short-term interest rate unambiguously rises. If the expansion falls on consumption commodities, capital accumulation is crowded out and the short-term interest rate declines during the period of the fiscal expansion. It is also shown that fiscal spending on the consumption commodity can move the short- and long-term interest rates in opposite directions. JEL Classification: E43, E62, O41 |
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