Understanding the Effects of a Shock to Government Purchases
Wendy Edelberg, Martin Eichenbaum, Jonas D. M. Fisher
This paper investigates the consequences of an exogenous increase in U.S. government purchases. We find that in response to such a shock, employment, output, and nonresidential investment rise, while real wages, residential investment, and consumption expenditures fall. The paper argues that a simple variant of the neoclassical model which distinguishes between nonresidential and residential investment is consistent with this evidence.
