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Propagation Mechanisms for Government Spending Shocks: A Bayesian Comparison
Author(s) -
KORMILITSINA ANNA,
ZUBAIRY SARAH
Publication year - 2018
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12555
Subject(s) - government spending , consumption (sociology) , economics , government (linguistics) , extant taxon , business cycle , bayesian probability , econometrics , baseline (sea) , consumer spending , government revenue , public economics , macroeconomics , public finance , computer science , political science , artificial intelligence , recession , market economy , linguistics , philosophy , welfare , social science , evolutionary biology , sociology , law , biology
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.