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American Economic Journal: Macroeconomics: Vol. 3 No. 1 (January 2011)

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Industry Evidence on the Effects of Government Spending

Article Citation

Nekarda, Christopher J., and Valerie A. Ramey. 2011. "Industry Evidence on the Effects of Government Spending." American Economic Journal: Macroeconomics, 3(1): 36-59.

DOI: 10.1257/mac.3.1.36

Abstract

This paper investigates the effects of government purchases at the industry level in order to shed light on the transmission mechanism for government spending on the aggregate economy. We create a new panel dataset that matches output and labor variables to industry-specific shifts in government demand. An increase in government demand raises output and hours, lowers real product wages and labor productivity, and has no effect on the markup. The estimates also imply approximately constant returns to scale. The findings are more consistent with the effects of government spending in the neoclassical model than the textbook New Keynesian model. (JEL E12, E23, E62, H50)

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Authors

Nekarda, Christopher J. (Federal Reserve Board)
Ramey, Valerie A. (U CA, San Diego)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E23: Macroeconomics: Production
E62: Fiscal Policy
H50: National Government Expenditures and Related Policies: General

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