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Adjustment Dynamics in the Euro Area – A Fresh Look at the Role of Fiscal Policy Using a DSGE Approach - G. Russell Kincaid

Author(s): G. Russell Kincaid, International Monetary Fund

Adjustment Dynamics in the Euro Area – A Fresh Look at the Role of Fiscal Policy Using a DSGE Approach - G. Russell Kincaidpdf(753 kB) Choose translations of the previous link 

Some researchers have recently introduced productive government investment spending into Dynamic stochastic general equilibrium (DSGE) models, adding a supply channel. This paper takes a similar perspective but it also introduces the government consumption good into the household utility function and this consumption good is supplied by a government production function. While higher government investment can increase private output and household consumption in the future, in the short run household utility is likely to decline because current consumption of private and government goods is shifted into investment and the supply of privately produced consumption goods is reduced. These considerations are especially relevant for euro-area members because fiscal policy is their only national macroeconomic policy tool.

JEL classification:E62; F41. F42; H30; H63
doi:10.2765/67266

(European Economy. Economic Papers 322. May 2008. Brussels. 41pp. Tab. Graph. Bibliogr. )

KC-AI-08-322-EN-C (online)
ISBN 978-92-79-08247-4 (online)

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