Working Paper
Trend Growth and the Dynamic Effects of Government Spending
Kiel Working Papers, 1678
Authors
Publication Date
JEL Classification
E21
E62
H31
Key Words
The paper studies the macroeconomic effects of government spending shocks in an economy characterized by positive trend growth. It shows that the lower is the trend growth rate the less inflationary are government spending shocks and vice versa. Moreover, on impact output is higher but exhibits less persistence the lower is trend growth, an effect that also characterizes consumption and the government spending multiplier, given that consumption and labor are somewhat complementary.
