@article{Consumption:1304,
      recid = {1304},
      author = {Bouakez, Hafedh and Rebei, Nooman},
      title = {Why Does Private Consumption Rise After a Government  Spending Shock?},
      publisher = {Bank of Canada},
      address = {2003},
      pages = {1 online resource (v, 31 pages)},
      abstract = {Recent empirical evidence suggests that private  consumption is crowded-in by government spending. This  outcome violates existing macroeconomic theory, according  to which the negative wealth effect brought about by a rise  in public expenditure should decrease consumption. In this  paper, we develop a simple real business cycle model where  preferences depend on private and public spending, and  households are habit forming. The model is estimated by the  minimum-distance and the maximum-likelihood methods using  U.S. data. Estimation results indicate a strong Edgeworth  complementarity between private and public spending. This  feature enables the model to generate a positive response  of consumption following a government spending shock. In  addition, the impulse-response functions generated by the  estimated model mimic closely those obtained from a  benchmark vector autoregression.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/1304},
      doi = {https://doi.org/10.34989/swp-2003-43},
}